Lesson Three: Keeping More of Your Estate

The whole point of estate planning is to preserve what you’ve made and pass it down to the family, friends and charities that are important to you. But there are numerous roadblocks that can result in losses to your estate. One of these roadblocks is the federal estate tax, which is a problem only for estates in excess of $11.2 million in 2018. Married couples can generally leave up to $22.4 million free of estate tax.

There are other expenses that can sap your estate, resulting in less for loved ones and charity. Eighteen states and the District of Columbia impose estate or inheritance taxes on estates far below the federal level. If you live in or own property in one of those states, your planning should include ideas for reducing or avoiding the tax. The cost of probate is another expense that can reduce the amount you leave to loved ones. It’s possible to avoid most probate fees by using a living trust, rather than a will, to pass assets at death. Joint ownership, beneficiary designations and lifetime gifts are other ways to keep probate costs to a minimum. A knowledgeable estate planning attorney can help you identify potential estate costs, as well as prepare an estate plan that allows you to keep more of your estate.

Strategies to Avoid Estate Losses
How can you protect your beneficiaries from losses to your estate?  Some expenses are inevitable, but you can cushion the impact.

Calculate the costs.  Ask your advisers to figure your estate settlement costs – taxes, administration expenses and debts – as if you were to die today.  Make the same estimate for your spouse’s estate.  Then make two more estimates assuming (1) that you outlive your spouse and (2) that your spouse outlives you.

Plan for estate liquidity.  Provide cash (or assets readily convertible to cash) to pay the expenses that will occur.  Many estates have had to sell assets at fire sale prices to cover taxes and other costs.  Strategies could involve a savings program, investments, life insurance or a combination of all three.  Your advisers may recommend an irrevocable trust that can make loans to your executor or purchase assets from your estate.

Look for ways to reduce losses.  You can protect your estate (or that of your surviving spouse) against losses through lifetime gifts to family, trusts designed to reduce taxes and qualification for certain tax breaks available to business owners. See pages two and three of Lesson Three for details.

Federal Estate Tax
With higher estate tax credits, very few estates will be subject to tax. Only estates in excess of $11.2 million in 2018 will be at risk. For married couples, it's possible to shelter $22.4 million.

You can fill out the table below to get an idea of your liability.

As you continue through the table, you may be surprised to see that the full face value of your life insurance proceeds are generally subject to the federal estate tax if you have any ownership rights in the policies.  This is true for all forms of life insurance:  cash-value, term, group insurance provided by your employer, accident or travel insurance, etc.

It may also surprise you that the full value of all property you own jointly with someone other than your spouse (not just a part of that total value) may be included in your gross estate.  For a quick estimate, include the full value; include half of it if the co-owner is your spouse.

IRAs, deferred compensation and many other employee benefits may also be part of your gross estate.  Personal property includes cars, furniture, stamp and coin collections, paintings, antiques, china, silver, etc.


Computing Your Taxable Estate
Input numbers only.


Your home

$

Other real estate

$

Life insurance proceeds

$

Jointly owned property

$

Retirement accounts

$

Other employee benefits

$

Stocks and bonds

$

Bank accounts and cash

$

Business interests

$

Personal property

$

Other

$

Total assets (gross estate)

$  

 

back | continue lesson