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Did you know?

In one year:
• 1 in 68 will be injured in a house fire
• 1 in 258 will have a house fire
• 1 in 113 will die
• 1 in 8 will be disabled

Estate Planning

A well-crafted estate plan can be a wonderful gift to leave your heirs. It can help ensure that the wealth you have accumulated passes to the people you have selected and in the manner you have chosen. Additionally, while you cannot prevent estate taxes and administrative costs from being charged to your estate, you can take steps to minimize your estate's erosion through proper analysis and the implementation of a thorough estate plan.

Unless you plan for estate taxes, the result can be a hefty tax bite, and perhaps an unnecessary one. For example, the chart below contains some names that you may recognize. It shows the amount of their gross estate, their settlement costs and the amount of shrinkage after estate and settlement costs were imposed.

Name

Gross Estate

Settlement Costs

% Shrinkage

Elvis Presley

$10,165,434

$ 7,374,635

73%

Charles Woolworth

$16,788,702

$10,391,303

62%

J. P. Morgan

$17,121,482

$11,893,691

73%

John D. Rockefeller

$26,905,182

$17,124,988

64%

SURPRISED?

Often the effects of improper planning for estate taxes are learned the hard way, as in the cases illustrated above. That is why a properly designed estate plan is essential for the protection of your family.

There are steps you can take to lessen your estate tax burden. Today, every estate owner is entitled to a unified credit, which permits up to $675,000 of assets to pass free of estate and gift tax. Under the 1997 tax law, the unified credit amount will increase in stages to a maximum of $1,000,000 in 2006. Accordingly, if your total taxable estate and lifetime gifts are $675,000 or less, there will be no federal estate tax due. An estate owner can also utilize the unlimited marital deduction which permits married individuals to transfer assets to their spouses during their lifetime or upon death, without incurring any federal estate tax. But if you have more than $675,000 of assets to leave, giving them all to your spouse will waste your $675,000 exemption.

With proper planning, a husband and wife can shelter $1.35 million from federal estate tax. $1.35 million may sound like a lot of money and beyond your reach but you may be worth much more than you think. Keep in mind that the gross estate includes all property of any description (personal property, real estate, life insurance, business interests, etc.) and in any location, to the extent you had any interest in the property at death. It may even include property that was given away or over which you had no control at the time of death.

So, if your total estate value at death exceeds $675,000, you may face estate taxes that range from 37% to 55%.

One viable option for neutralizing the negative effects of estate taxes is to purchase life insurance. Through the use of a single or second-to-die life insurance policy you can establish the funds needed to help pay taxes for the estate, rather than from the estate.

In the hypothetical example below, proper estate planning results in heirs receiving an additional $1,000,000. This scenario reflects the purchase of an insurance policy in the amount of $750,000, proceeds of which are not included in the decedent's estate.

The Results of Proper Estate Planning*
Gross Estate: $3,000,000 (assumed year of death 2000)

In this hypothetical example, proper estate planning results in heirs receiving an additional $1,000,000.

*Note: This presentation is about the need to plan. The information presented is general in nature and is not intended to apply to a specific situation. Before employing any techniques, consult with your professional advisors. The "after-planning" scenario reflects the purchase of an insurance policy in the amount of $750,000, proceeds of which are not included in the decedent's estate.

For a married couple, it may be most beneficial to purchase a second-to-die life insurance policy. In addition to establishing funds to help pay the estate taxes, with a second-to-die life insurance policy you are able to:

  • Insure two lives under one policy with the benefit paid at the death of the surviving spouse, when estate liquidity is needed most.
  • Pay lower, more affordable premiums for combined coverage rather than paying premiums for two separate individual policies.
  • Plan your estate to add substantially to the inheritance of your beneficiaries.

The skilled professional life insurance representatives of #1 Insurance Quotes Life Disability Insurance can help you devise an estate plan suitable for your needs. Together with you and your other professional advisors, we can help determine which techniques can most effectively accomplish your goals and minimize the effect of state and federal taxes.

For more information on Estate Planning–Click here to visit our planning library.

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