Provided by the Law Offices of RICHARD
MAYBERRY
MAYBERRY LAW FIRM
2010 Corporate Ridge
McLean, VA 22102
(703)714-1554
Committed to providing the highest quality estate planning legal
services for individuals, families and businesses |
The number of “millionaires next door” in this country is nothing
short of staggering. In 1998, there were 2.5 million households with more
than $1 million in investable assets. By the year 2003, that number is
projected to reach 3.5 million. Amid this unprecedented prosperity, the
single wealthiest generation is preparing to transfer an estimated $7 to
$10 trillion dollars to its heirs.
What will become of this wealth? How much will be
confiscated by death taxes? Will the heirs squander their inheritance or
perhaps lose it to their divorces, lawsuits and bankruptcies? Fortunately,
proper Life & Estate Planning can preserve your wealth from death
taxes and even perpetuate it for generations.
Death Taxes
Few
Americans accumulate wealth without careful income tax planning each year.
If you ignore available tax shelters, deductions and credits, then you
only enrich the IRS…and shortchange your own net worth. Remember: It’s
not how much you make that counts, rather it’s how much you keep.
Even if you
engage in sophisticated income tax planning, your lifetime tax savings can
be wiped out by death taxes later on. Under current law, each taxpayer may
shelter an applicable exemption equivalent of $675,000 (scheduled to
increase to $1 million by 2006) in assets from death taxes. Married
couples may protect twice this applicable exemption equivalent, or $1.35
million, but only through careful planning.
Too many
married couples unknowingly forfeit the full protection from death taxes
available to them under the Internal Revenue Code. This mistake can be
costly because the tax rates on estates exceeding $675,000 range from 37%
to 55%. For example, a married couple with a $1.35 million estate may lose
over $200,000 to the IRS in unnecessary death taxes. Whether you are
single or married, your Life & Estate Plan should include estate tax
planning.
Inheritance
Protection
Assuming
your hard-earned assets escape unnecessary death taxes through proper
planning, all may be for naught unless you protect the inheritance both
from your heirs and for your heirs. First, no one values the worth of a
dollar like the person who earned and paid taxes on it. Second, inherited
wealth has tendency to attract problems, especially if that inheritance
remains unprotected.
Whenever
someone lacking financial maturity receives an inheritance, it is good
news for sports car (usually red in color) salespeople, travel agents and
high-end electronics dealers. Is that how you want your hard-earned wealth
consumed? Even worse is the potential damage to your heirs. Andrew
Carnegie, one of the wealthiest industrialists of the late 19th century
observed that “[t]he parent who leaves his son enormous wealth generally
deadens the talents and energies of the son.”
Inherited
wealth tends to attract problems like steel to a magnet. Couples that can
weather financial poverty may divorce over financial prosperity. Suing
deep pocket defendants has become almost a national past-time in our court
system. The past, present or future creditors of your heirs will look to
your wealth for financial satisfaction. While divorces, lawsuits and
bankruptcies can strike any family at any time, proper inheritance
protection planning may prevent your wealth from being taken.
Discretionary Trusts
When your
wealth is distributed to your heirs either outright or in chunks (e.g.
different percentages or fractional shares distributed outright at
specified ages), it may be lost to any of the problems discussed above.
Whether created under your Last Will & Testament or your Revocable
Living Trust, a Discretionary Trust may protect your wealth for and from
your heirs. Generally speaking, under a Discretionary Trust a Trustee of
your own selection administers and distributes your wealth for your heirs.
The terms of the arrangement can be loosely or tightly drafted depending
on the degree of inheritance protection you want. In addition to
protecting the inheritance for and from your heirs, you may include
valuable Generation-Skipping Transfer Tax provisions to exempt up to
$1,030,000 of your wealth from another round of death taxes in the estates
of your heirs.
Summary
This has been a brief, general overview of an
extremely complex topic. Qualified legal counsel should be sought to
evaluate your options to perpetuate your prosperity.
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