Of five reasons why estate planning is important, the first is probably the most obvious. Today, there is a material Federal tax on all estates greater than $5.49 million per decedent.
That’s almost $11 million per married couple and for those well in excess of that – you do the math. It could cost you 40 percent of that excess in federal taxes alone to ignore this material future liability. Add to this whatever your local or state tax situation is, and you could pay more than half of your estate to the tax authorities.
Reason number two is state or local estate taxes. Of course, not all states have them but most in the northeast do. In many states they run as high as 10–15 percent of the total, frequently with very small exemptions in the $1 million range.
Asset protection is another significant reason to execute a great estate plan.
Most people who intend to leave an inheritance would like to make sure that the inheritance is as protected as possible from the perils of a future divorce, lawsuits, bad health or bad decisions. Proper structuring of an estate can help to avoid any of these common problems encountered by future generations.
Reason number four: most children are not capable of overseeing large sums of money when they are 18 or 21 years old. In most states, absent language to the contrary, money or assets left to children become their property with full control at either age 18 or 21, depending on your state of residence.
There will always be an exception, but at that age, young adults are far too susceptible to the actions of their peers and their whims than they should be.
More importantly, you need to think down the road. While your immediate children may already be significantly older than age 21, their children may not be. A solid estate plan is one that is built to survive generations, if necessary. The protections that you set up today may stay intact forever if your adult children and their offspring don’t remove the assets from trusts that you establish.
Of course that doesn’t mean that they won’t have access to the assets or the money – they would, through the trust.
And the last reason is very significant for business owners. Succession in a business is tough enough. Add to that the complexities of family, key employees, real estate and keeping a business thriving through the turmoil of an unexpected death or disability and advanced planning can be a godsend. Make sure that all of the key people involved are aware of the plan that you have created.