Historically, when someone dies, their estate (property, money, life insurance policies, IRAs, etc.) must be studied to see if federal tax is owed. The death is the triggering event.
However, as part of a frankly mystifying Congressional scheme, there is absolutely no federal estate tax in 2010. Wealthy, unhealthy folk are undoubtedly mulling this over. (Some of these estate planning issues can be quite morbid. Yet practical.) The federal estate tax is scheduled to return in 2011. A $1 million exemption will be provided, but everything over that amount will be taxed -- at 55%. Phew! Now you see why folks try to reduce the size of their estates before they die. For instance, a person can give gifts up to $13,000 each year without reporting it to the IRS.
The first member of a couple who dies can pass everything he or she owns to the remaining spouse tax-free. This is a policy choice, because we think it's bad policy to saddle a grieving, vulnerable widow/er with a tax bill. But, when the widow/er dies, all the couple's property is scrutinized in order to determine if tax is owed. Tax planning will help mitigate and control situations like these.
Tuesday, March 23, 2010
Tuesday, March 9, 2010
Mantras Will Ease and Simplify Planning Discussions
Estate planning is about death and taxes. Can you imagine having a discussion that's more fraught with the great "yucks" of life?
However, those two "yucks" are certain to happen, as the saying goes. Since we well know that death can arrive much sooner than we'd like, plan for it so you or those you love the most can better handle it when it gets here.
Create a mission statement that guides you through this planning. My mom and I had a mission statement while we were planning my wedding. It was: "we're not doing anything that isn't fun." We dropped some ideas and contractors who didn't fit the mantra. It simplified everything.
Take the common worry that two parents could die together. It happens. If you're talking to your spouse or S.O. about who would take care of the kids in this scenario, repeat this mantra: "We will give our children the best shot at a happy life". The mantra will keep emotions tamped down. What type of emotions? Hurt --like when you're explaining to your wife that, while her brother is a good guy, he is not the best person to select. Or perceived insult -- when you pick one person to love and care for the children but place the management of their (your) assets into another person's hands. But if it's the best thing for the kids, do it. After the would-be guardians and trustees agree to their roles, memorialize them in your will and be happy that you've sent up the best situation possible.
Another scenario is that of a middle-aged person trying to convince his elderly parents of the importance of planning. Here, too, a mantra is needed: "Our goal is to control this process so that laws, doctors, judges, and taxes don't control it." Yeah, talking about the merits of a respirator or feeding tube is depressing. Yeah, assets may seem too small to protect. Yes, siblings disagree over who should get certain possessions. But only those same elderly folks are entitled to make those decisions. After permanent incapacitation or death, in the absence of such decisions, a bunch of strangers can make them. "Our goal is to control this process as a family." Tell that to your parents. If they categorically refuse to discuss such things, get them to sign a financial and medical power of attorney that allows you to make these decisions. At least they'll be alive, and you can consult with them (if you want to).
Organizing principles work.
However, those two "yucks" are certain to happen, as the saying goes. Since we well know that death can arrive much sooner than we'd like, plan for it so you or those you love the most can better handle it when it gets here.
Create a mission statement that guides you through this planning. My mom and I had a mission statement while we were planning my wedding. It was: "we're not doing anything that isn't fun." We dropped some ideas and contractors who didn't fit the mantra. It simplified everything.
Take the common worry that two parents could die together. It happens. If you're talking to your spouse or S.O. about who would take care of the kids in this scenario, repeat this mantra: "We will give our children the best shot at a happy life". The mantra will keep emotions tamped down. What type of emotions? Hurt --like when you're explaining to your wife that, while her brother is a good guy, he is not the best person to select. Or perceived insult -- when you pick one person to love and care for the children but place the management of their (your) assets into another person's hands. But if it's the best thing for the kids, do it. After the would-be guardians and trustees agree to their roles, memorialize them in your will and be happy that you've sent up the best situation possible.
Another scenario is that of a middle-aged person trying to convince his elderly parents of the importance of planning. Here, too, a mantra is needed: "Our goal is to control this process so that laws, doctors, judges, and taxes don't control it." Yeah, talking about the merits of a respirator or feeding tube is depressing. Yeah, assets may seem too small to protect. Yes, siblings disagree over who should get certain possessions. But only those same elderly folks are entitled to make those decisions. After permanent incapacitation or death, in the absence of such decisions, a bunch of strangers can make them. "Our goal is to control this process as a family." Tell that to your parents. If they categorically refuse to discuss such things, get them to sign a financial and medical power of attorney that allows you to make these decisions. At least they'll be alive, and you can consult with them (if you want to).
Organizing principles work.
Subscribe to:
Posts (Atom)