Joseph C. Kempe

FAILING TO WRITE A WILL

A spouse's share of an estate often differs depending upon whether you die with or without a will.

The state of your domicile determines who receives your property if you die without a will.

If you die without heirs, the state of your domicile receives your property rather than a friend or a charity.

HOLDING PROPERTY JOINTLY WITH A SPOUSE OR LEAVING EVERYTHING TO A SPOUSE

Holding all of your property jointly with a spouse wastes the "Unified Credit"1/ of the first spouse to die and results in excess of a $435,000 increase, at a minimum, in taxes of estates with a value of $2,000,000 or more.

THINKING PROCEEDS FROM LIFE INSURANCE ARE NOT TAXED

Any incidents of ownership held at death will cause life insurance policies to be taxable in your estate; i.e., ownership, the ability to change beneficiaries, or to borrow from a life insurance policy on your life will cause the full death benefit to be taxed in your estate.

Estate taxation of life insurance is often avoided through the use of an irrevocable life insurance trust.

THINKING IRAs AND PENSION PLANS ARE NOT TAXED

The value at death of these and other types of deferred compensation plans are subject to estate tax.

The recipients of distributions from these plans or accounts, unlike life insurance, are also subject to income tax on receipt.

A large balance in an IRA in an estate of $3 million or less will often result in an additional tax of $345,000 to $500,000 more than would otherwise occur with proper planning.

THINKING AVOIDING PROBATE AVOIDS ESTATE TAXES

Life insurance, IRAs, pension plans, property held jointly with rights of survivorship, annuities, and property held in revocable living trusts are generally not subject to probate, but this does not mean that they are not subject to federal and state death taxes.

THINKING THE USE OF YOUR $1.5 MILLION GENERATION-SKIPPING TAX EXEMPTION TAKES ASSETS FROM YOUR CHILDREN

99% of individuals waste their $1.5 million generation-skipping tax exemption. However, the vast majority of us would use our generation-skipping tax exemption if we really understood it.

Use of your generation-skipping tax exemption provides an umbrella of protection for your assets when they pass to your children, grandchildren, etc., protecting it from divorce risks, taxation, and other risks.

^1/ The "Unified Credit" is $345,800, which is the tax on $1,000,000 of wealth passed at death to a nonspouse (or noncitizen spouse). Everyone (except noncitizen, nonresident aliens) has this Unified Credit, which can be used during life or at death to transfer wealth without taxation. It is possible to leverage the use of this credit to transfer significant amounts of wealth during life.