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Finance an Education

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What's Your Net Worth

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Tax-Planning Strategies


Plan for Financial Success

Creating a Financial Plan

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Retirement Planning Basics

Investing Wisely

Investing Considerations

What's Right for You?

Investing Techniques

Preserving Your Wealth

Reallocating Your Assets

Insurance Options

Wills and Trusts

Plan for Heirs

Gifting to Family & Charity

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Plans for Heirs

Depending on the tax rules for any given year, the estate tax rate could be 50% or higher. Take a look at the impact of these so-called inheritance taxes through a sample scenario. You should visit for the latest information inheritance tax rates.

Will Dancer owned a $4 million dollar estate, which transferred to his wife, Edna, when he died. Of that estate, $2,000,000 passed to his children tax free upon Edna's death. The remaining $2,000,000 was subject to estate taxes, about $1,000,000. In the end, the Dancer children only received about three quarters of Mr. Dancer's estate.

A few ground rules for estate planning

  • Any amount passed on to a spouse is tax free; this is called a marital deduction
  • Any amount passed on to a charity is tax free
  • You may gift as much as $11,000 a year (in 2005) to each child (or anyone you please) free of estate taxes
  • Any amounts over $11,000 per year (in 2005) are deducted from your lifetime gift exclusion
  • All other assets in the estate can be subject to up to 50% or more in estate taxes

Estate planning strategies

  • Marital trust. A marital trust is also referred to as a 'Q-Tip Trust' and is designed to protect assets for children. Basically, the surviving spouse receives interest income from the trust, but requires approval from the trustee for any additional money accessed from the principal.
  • Bypass trust. Money in a bypass trust passes on to the surviving spouse tax free, then passes on to their children tax free upon the second spouse's death.
  • The spendthrift trust. If you would like to set up a trust for your children to remove assets from your taxable estate, yet ensure they don't go hog wild and spend it all quickly, you may create a Spendthrift or "Safety Net" trust. Properly structured and disbursed, this trust can help provide for the essentials of not just your children, but for future generations as well.
  • Life insurance trust. Many people buy a life insurance policy specifically for the purpose of paying estate taxes so that the bulk of the estate can pass on to heirs. However, it's important to note that to do so, you must create a life insurance trust that specifies that the trust will buy a life insurance policy with the trust as the owner. Only under this scenario do policy proceeds avoid estate taxes, and may therefore be used to pay taxes on the estate and let the assets pass intact to heirs.
  • Structure your IRA to outlive you. Instruct your IRA to make required minimum distributions (RMD) based on the combined life expectancy of your and a specified beneficiary. When you die, the beneficiary may continue to hold the IRA in your name and continue receiving the RMDs, paying income taxes on distributions but avoiding the early withdrawal penalty. Plus, any estate taxes paid upon your death may be deducted from the current year's income taxes.



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