|
Submitted by: Chad Olivier
Chad is owner of the firm The Olivier Group, LLC in Baton Rouge, LA., which specializes in retirement planning and wealth management . Chad is a contributing writer of Wealth Management articles for the Journal of the Louisiana Dental Assoc. Securities and Financial Planning offered through Linsco/Private Ledger Member NASD/SIPC. Please note that the article is for informational purposes only. Financial Planning requires detailed individualized analysis of each person's specific situation
Staying In Control: Who Gets Your Assets – Family or Uncle Sam?
Most people share a love for the USA and have probably paid a fair amount in taxes. Nevertheless, without careful planning, your heirs could end up in a tug of war with the federal government over your estate. You may be able to avoid the government seizing more than their fair share with proper estate planning. This involves taking the ranks and staying in control of your assets. Let’s look at an example:
Dr. Jones (currently a widower) passes away with the following estate:
Cars………………….$25,000
House………………..$1,000,000
Condo……………….$750,000
Rental Property……...$500,000
Investment Account…$500,000
IRA………………….$3,000,000
Art Collection……….$100,000
Furnishings…………..$100,000
Bank Accounts………$100,000
Life Insurance Policy...$2,000,000*
*Owner of Policy: Dr. Jones, Beneficiary: kids
Estate for planning tax purposes = $8,075,000
Approximate estate tax Dr. Jones’ heirs will owe:
$8,075,000 - $2,000,000 (exemption allowed*) = $6,075,000
$6,075,000 * 45% = $2,733,750
*Currently, you are allowed to use a Unified Credit Exemption of $2 million to offset your assets.
The heirs will owe $2,733,750 in estate taxes that must be paid in full within nine months after Dr. Jones’s death.
Where will the kids get the money to pay the $2,733,750 in Federal Estate Taxes? After the kids receive the $2 million in life insurance proceeds, they should liquidate the $500,000 investment account and the $100,000 in the bank. After the liquidation, a tax bill of $133,750 still remains. The IRA will be taxed at the kids’ current tax bracket if distributed and all of the other assets may be at the mercy of the current market due to low liquidity.
Where did Dr. Jones go wrong?
1. Bad Titling: He should not own his life insurance policy. An irrevocable life insurance policy trust would have taken $2 million out of his estate.
2. Advanced planning should have been considered: Dr. Jones could have looked into advanced planning, such as gifting part of the estate. This would have provided the kids with tax-free money thus lowering the estate burden.
3. Planning better in general: A large portion of the estate is in non-liquid items. This makes it difficult for the kids to easily come up with estate tax money, causing them to use up most of the cash.
With the appropriate planning, Dr. Jones would have left more assets to his children instead of handing his life-long earnings to Uncle Sam.
Chad Olivier is owner of the firm The Olivier Group, LLC in Baton Rouge, La., which specializes in retirement planning and wealth management for physicians, dentists and other affluent individuals and families. Securities and Financial Planning are offered through Linsco Private Ledger Member NASD/SIPC. Please note that the above article is for informational purposes only. Financial planning requires detailed individualized analysis of each person’s specific situation.
CFP®, Certified Financial Planner™ and are certification marks owned by Certified Financial Planner Board of Standards Inc.
> Return to Financial Strategies |
Authored by the
founder of the
PaladinRegistry