Tuesday, January 6, 2009

It's More than Avoiding Taxes

New York Times published a great article on Estate Planning December 30, 2008 called "Estate Planning Is More Than Avoiding Taxes, by Paul Sullivan

The estate tax can be 45%, which can be a big chunk of change. Even with all the planning and armies of lawyers, it can all be undone by mistake. A program developed by J P Morgan called ATLAS (Analysis of Taxes, Liquidity and Structures) has identified the top oversights in estate planning:

1. Wrong Heirs - People fail to update 401K beneficiary forms and others, leaving their money to a wrong heir or a dead heir.

2. Liquidity Deficit - JP Morgan estimates that about half of its clients don't have enough cash to pay estate taxes and have assets that cannot be easily sold. This can force heirs into forced sales in bad markets.

3. Estate Management - Leaving everything to heirs upon death is not the most efficient strategy to minimize the estate tax.

4. Executor - Too often people chose relatives who, however close and trustworthy, don't have the legal and financial background needed.


1. Review your estate plans and beneficiary forms once a year and after changes in your personal circumstances.

2. Buy life insurance to cover any deficits in liquid assets needed to pay your estate tax.

3. Effective estate management can help reduce the size of a taxable estate. The examples they reducing estate by $776,000 by purchasing life insurance that paid out $12 mil upon death, an amount that passes out of the estate tax-free. Purring low-value stock into a trust allows it to appreciate tax-free.

4. As your estate grows, so will the need for expertise in managing it. This brings us back to lesson #1. If your estate was worth two million dollars when you appointed your brother and now it's 100 million, it might be time to re-evalute your needs.

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