Estate Tax Planning

What is Estate Tax and Estate Planning?

The Estate Tax is a tax on your right to transfer property at your death.  It consists of an accounting of everything you own, or have certain interests in, at the date of death.  The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of Cash and Securities, Real Estate, Insurance, Trusts, Annuities, Business Interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in, arriving at your "Taxable Estate."  These deductions may include Mortgages and other Debts, Estate Administration expenses, property that passes to Surviving Spouses and Qualified Charities.  The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Presently, the amount of this credit reduces the computed tax so that total taxable estates and lifetime gifts that exceed $1,000,000 will have to pay tax.

Estate Planning is the process of accumulating and disposing of an estate to maximize the goals of the estate owner. The various goals of estate planning include making sure the greatest amount of the estate passes to the estate owner's intended beneficiaries, often including paying the least amount of taxes and avoiding or minimizing probate court involvement. Additional goals typically include providing for and designating guardians for minor children and planning for incapacity.

Is Estate Planning Only for the Wealthy?

Recent changes in federal estate tax rules have left many people with the belief that estate planning is only for the very wealthy. But that simply is not true. Providing the resources for the payment of death taxes is only one aspect of a family’s estate planning. Many estates will continue to have a federal estate tax liability since rate reductions and increased exemptions are phased in over the next few years.

When Do I Have an Estate Tax Problem?

When the value of your assets combined exceeds the amount exempt from federal estate taxes, you have an estate tax problem.

What would be Considered Part of my Estate?

• Your home and any other real estate that you may own
• The face amount of any personal or group life insurance policies in your name
• The sum of any savings, retirement plan assets or government benefits you are owed
• The value of any personal property (cash, furniture, jewelry, automobiles, etc.)
• Your share of a business

What are the Benefits of Estate Planning?

• Ensure financial security for you and your family during your lifetime, and after your death.
• Make certain your estate is passed on, intact, to your heirs and according to your wishes.
• Reduce or eliminate taxes, administrative expenses and delays in connection with the transfer of your estate.
• Provide liquidity to cover taxes, debts and expenses you may owe.
• Provide the peace of mind that come with knowing steps have been taken to protect the people who depend on you and everything you’ve worked a lifetime to build.

Who Should Consider Estate Tax Planning?

• Individuals with assets exceeding the amount exempt from federal tax.
• People who own their own business.
• People who have minor children or who have been married more than once and are still responsible for children from a prior marriage.
• People with dependents who are handicapped, elderly or who have special or long-term needs.
• People who want to donate assets to a favorite charity, institution or other non-profit organization.

Where Does the Money Come From to Pay for Estate Taxes?

Savings and Investments — You could sell off any stocks, bonds or mutual funds you own to raise enough cash to pay the tax when it comes due. But if you sell them when the market is depressed, you could suffer substantial losses. What’s more, you’d also lose any future income and investment opportunities these funds could offer, resulting in estate shrinkage.

Sale of Assets — You could liquidate assets such as your home and other personal property. Unfortunately, most “forced sales” result in bargain prices for the buyer and loss of value for the seller.

Credit — You could borrow money to pay estate taxes, but in doing so you’ll actually add to your total expense. Now you’ll have to pay both the principal AND interest.

Life Insurance — Life insurance can provide the cash needed to pay estate taxes for just pennies on the dollar. Consider the benefits:

• Cash for your estate, not from your estate
• With proper planning, life insurance proceeds can be received tax free
• Life insurance is not subject to the expense and delay of probate
• Proceeds are paid immediately at death…no waiting
• The amount of cash is guaranteed and known in advance. Please note all guarantees are based on the claims paying-ability of the insurer
• No forced sale of assets at deeply discounted prices
• Much needed cash and other liquid assets are preserved

Determining How Your Assets are Distributed

The four most common ways of preserving and transferring your estate to your heirs are wills, trusts, charitable gifts and life insurance.

Wills — A will is a legal declaration of how you want your assets to be distributed when you die. But a simple will cannot do it all. Ownership issues could supersede your will, or the will could be contested in court.

Trusts — A trust allows you to custom/tailor the transfer of property to your beneficiaries according to your specific wishes.

Charitable Gifts — Charitable gifting allows you to distribute a portion of your assets to selected organizations, reducing the amount of taxes you owe.

Life Insurance — Life insurance can provide the cash you and your family needs to maintain their lifestyle and the liquidity to pay estate taxes and settlement costs when they come due.

5830 Oberlin Drive, Suite 304
San Diego, CA 92121
Phone: 800-731-8122
info@proplanusa.com