Estate Conservation Challenges

By Jon L. Ten Haagen, CFP ®
asktheexpert@longislandergroup.com

Finding the right attorney to handle your estate can make a big difference for both you and your estate. Make sure you choose an attorney familiar with estate distribution. I have seen all levels of qualified and non-qualified attorneys. Talk with friends who have gone through the process and interview attorneys.

Probate is simply the process of a court-supervised proceedings that make sure your wishes are adhered to. Probate court acts as a neutral forum looking to settle disputes that may arise.

The system can be complex and has some serious drawbacks. Again, make sure you use a very competent attorney. The first problem is time. This process can drag out for three to six months and more. The second is that it’s expensive. Each state is different and can eat up 3-to-7 percent of the gross estate. Next, is the lack of privacy since probate is public knowledge.

Another challenge is the estate tax itself. When you pass away the federal and some states want their piece of the estate pie. Over the years estate taxes have come and gone. Many times they are initiated for wartime expenditures. With the changes and whimsy of the federal government you plan carefully.

Federal estate taxes are calculated on the net worth of your estate. Could be your home, stocks and bonds, life insurance and anything else of value you own. Subtract allowable debts, expenses and deductions.

This is a simplified calculation to estimate the federal estate taxes due on an estate:

Net Value of Estate – Estate tax exemption = Taxable value of estate plus estate tax rate = Estate taxes due

Federal Estate and gift taxes: in 2010 the tax relief act reunified the estate and gift tax exclusions at $5 million, and the American Taxpayer Relief act of 2012 made the higher exemption amount permanent, indexing it annually for inflation. In 2014, the exemption was $5.34 million. This enables individuals to make lifetime gifts up to $5.34 million before the gift tax is imposed. Check with your tax advisor to see what the current limits are.

The executor must file an estate tax return when the first spouse dies, even if no tax is due. If the executor does not file the return or misses the deadline the surviving spouse loses the right of portability.

Unlimited marital deduction. The federal government exempts all transfers of wealth between a husband and wife from federal estate and gift taxes as long as the surviving spouse is a U.S. citizen.

As you can see these are very complicated things and you want to make sure you get it right the first time.

If you would like more information on this topic you can call the “Ask the Expert” along with your tax advisor. We look forward to your call. Have a safe and fun summer.