By Terry Corbell
The Biz Coach
Even Ordinary Folks Need 10 Best Strategies for Estate Planning
It’s a mistake to think estate taxes only apply to the super rich. Estate taxes hurt ordinary folks.
Estate taxes are especially problematic for farmers and small businesspeople, alike, who own their buildings and have capital tied up in equipment to grow crops or to produce products.
The drought is devastating many farmers — they can’t get hay for their animals and they have fewer crops to sell. The sour economy has made it difficult for most small businesses to find customers.
Needless to say, both are job creators. Unfortunately, many family farms and small businesses have been sold because the heirs couldn’t afford the estate taxes.
One might think that public officials would be sympathetic. But published reports indicate the two presidential campaigns have stark differences in how they would approach taxes and estate planning for passing assets to heirs.
Republican vice presidential candidate Paul Ryan has a long congressional history on taxes – he would do away with the estate tax.
As his potential boss, GOP presidential candidate Mitt Romney also calls for eliminating the estate tax.
President Barack Obama’s approach is vastly different. He wants to reinstate the 45 percent estate tax above the $3.5 million level. Other Democrats have called for a 55 percent estate tax.
At this writing, the estate tax is 35 percent over $5 million.
If you want to preserve assets as much as possible for your children, talk with a qualified estate attorney about these 10 basics:
- Estate planning is important in tax issues. True, a living spouse gets all proceeds without being taxed. However, beneficiaries – including your children – may be subject to paying an estate tax. So estate planning helps to insure that your heirs will inherit the maximum possible while minimizing taxes.
- Be very selective in choosing an executor. Until taxes are paid and assets are distributed, your executor will be handling all the important details. You’ll need to pick one with financial knowledge and unquestioned honesty. Otherwise, your estate might be tied up with the Internal Revenue Service and lawsuits among jealous parties – to name just a couple of issues.
- Create a will. Unless you have a will, a court will make the decision on whom gets the assets and how much. Indicate in your will how you want your estate to go to your heirs, even if your assets are small.
- Consider a family trust. Trusts aren’t just for the rich. A well thought out trust will protect your assets by making certain they will go where you want. Other benefits – trusts keep ex-partners/spouses of beneficiaries from getting their hands on your assets, and trusts can designate when your children get your money. Some children are too irresponsible to receive a large sum of money at an early age.
- Gifting as an option before you pass away. Legally, you can gift $13,000 in money or other assets annually to an heir without anyone being subject to the gift tax. In this way, your heirs keep more of your assets instead of the federal government.
- Estate planning should be fine-tuned when necessary. Nothing ever stays the same. Because conditions and situations change, you should review your estate planning upon the death of your partner. That’s because you’ll have to change the list of beneficiaries, if your partner dies first.
- Retirement accounts need attention, too. You should consider talking with your account managers – to specify beneficiaries in IRAs or other retirement accounts. If you don’t – and you only name names in your will – the estate settlements will take much longer than necessary.
- Joint accounts with your partner will simplify financial issues. It takes time for a partner to legally get access to your accounts on your passing, and vice versa. Remember, there will be new and continuous expenses that will have to be paid. Such headaches would be avoided with joint accounts.
- Before you remarry, do a pre-nuptial. If you remarry, you’ll probably want your estate to go to your children instead of your new partner. A good estate attorney will write an effective pre-nuptial agreement. Then, your executor won’t have any problems distributing your assets.
- Financial issues should be co-managed. The passing of a loved one can be very traumatic and heartbreaking. It’s much worse when the surviving spouse doesn’t have a clue about the finances. Both spouses should have a working knowledge about family finances.
Note: The IRS released a new draft version of Form 706, the Estate (and Generation-Skipping Transfer) Tax Return.
So, get busy if you want to effectively make certain your estate wishes are carried out. Establish a good estate plan, and remember how to vote if you want tax fairness.
From the Coach’s Corner, see these related topics:
- Is it Too Much to Ask for Civility and Honesty from Mr. Reid and the Press?
- 7 Capitalism Principles for Economic Growth, Prosperity
- Nonpartisan Study: Obama’s Tax Plan Hits 53% of Business Earnings
“There is one difference between a tax collector and a taxidermist – the taxidermist leaves the hide.”
Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.