Did You Know . . .
Estate tax rates may be as high as 40% in 20251. "So what", you may be thinking; you are still accumulating assets and don't consider yourself wealthy enough to have an estate tax problem.
You might be pleasantly surprised to learn that your estate is larger than you thought and, with proper planning, you may be able to keep it intact for your heirs.
The Value of Your Estate
Your estate basically consists of everything you own minus everything you owe. In business terms, it's assets minus liabilities, which produces your net worth.
There are many items making up your estate, including:
· Cash, CDs, mutual funds, stocks, bonds, etc.
· Other real estate at current market value.
· Personal property (e.g., boat, jewelry).
· Your share of jointly held property.
· Value of a business interest.
· Life insurance and annuities.
· Any inheritance you may receive.
· Retirement plan benefits.
· Your share of community property.
After subtracting debts (mortgage loans, other loans, bills, credit cards and uncollected judgments), past due income and property taxes, you arrive at your net worth. Like most people, you will want to pass along as much of that amount as possible. Unfortunately, the IRS will tax you for the privilege of transferring your wealth to heirs.
Planning Is The Key
Generally speaking, a well-planned estate will incur less costs and less overall shrinkage. Proper planning certainly could have helped Elvis Presley. His estate shrunk an astounding 73% because of debts and taxes2.
Total costs for the Elvis Presley estate include debts and $2,785,585 in federal estate tax.
Life insurance also could have helped. Unfortunately, there was only $63,660 of life insurance on his life in his estate.
There are four possible ways to provide for estate expenses.
1. Cash or liquid assets
2. Selling assets
3. Borrowing
4. Life insurance
Looking At Life Insurance
Life insurance can be a cost effective way of paying estate expenses. It will generally pay an income tax-free death benefit and allow your family to keep the value of your property. The uncertainties of borrowing (who will provide the loan and at what rate) will also be avoided.
Consider these advantages of life insurance:
· It can free up other assets earmarked for estate liquidity needs.
· It may prevent a forced sale of assets.
· Proceeds of life insurance are generally free from federal income tax and, with proper planning, may be free from federal estate tax.
· In some states, properly arranged life insurance may escape state death taxes.
If you would like to know more about how life insurance might be used to help pay estate taxes, ask your New York Life agent, Izhak Asher, to provide a preliminary analysis.
Neither New York Life nor its agents are in the business of providing tax, legal or accounting advice. You should consult with your professional advisors for tax, legal or accounting advice.
Presley’s Gross Estate $10,165,434
Total Costs* $7,374,635
Net Estate $2,790,799
Shrinkage 73%
1 SmartAsset.com, November 2024: https://smartasset.com/taxes/all-about-the-estate-tax
2 AmazonAWS.com: https://s3.amazonaws.com/static.contentres.com/media/documents/094eb8dc-8fba-438a-91d3-be3690bebf1e.pdf