Finance Blog


 Estate Management Principles

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President, Rolek Retirement Strategies

There are two objectives in effective estate management: First, managing your financial and personal affairs during your lifetime; And second, distributing your wealth after your death.

Done well, estate management can make a huge difference. It can enable you to spell out your healthcare wishes in ways that may help ensure they are carried out—even if you are unable to communicate. And it can help ensure that your possessions go to the heirs you choose, without the endless legal wrangling that can tie up your estate and cause deep divisions within your family. Through effective estate management you can avoid needless expense in legal costs, and you can provide for loved ones who may not be protected otherwise. These issues are too important to trust to luck—you need to determine the outcome by planning in advance.

Legislation regarding the federal estate tax is often under debate, and the regulations change every few years. In 2010, there was a break between the expiration date of one law and the beginning date of the next, and a few families may have benefited from the lapse. Let’s take a look at someone who may have caught a lucky break when it came to estate management. By dying in 2010, George Steinbrenner managed to completely avoid having to pay any federal estate taxes. His heirs may end up having to pay taxes on their capital gains. But, since their capital gains taxes are limited to 20%, the resulting tax bill may be relatively small. Mr. Steinbrenner’s attorney said the Yankee owner had an “aggressive and ongoing approach” to managing his estate. You should consider adopting those two words when it comes to estate management: aggressive and ongoing.

In order to understand how estate taxes work, let’s look at the history of the estate tax. The first estate tax was established in 1797 to fund an undeclared naval war with France. Shortly after the war ended, the tax went away.

That happened again for the Civil and Spanish-American wars. Congress passed an estate tax to pay for the war, then repealed it afterward.

Until 1916. The 16th Amendment to the Constitution was passed in 1913—the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established estate tax; it’s been modified over the years but never repealed.

In 2012, the American Tax Relief Act made the estate tax a permanent part of the tax code.

This hypothetical example shows the formula for estimating estate taxes is actually quite simple.

If you don’t happen to have a complete set of IRS tax tables lying about, you can estimate the federal estate tax by using a quick formula. Beginning with the gross value of an estate, subtract the exemption amount of $5,450,000. Then multiply the result by 40%—the federal tax bracket for estates above $5,450,000 in size.

If you complete your estimation—and find you may have an estate tax bill—it’s possible you may benefit from estate management.


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