If you and your spouse died tomorrow, do you know how much of your estate would go to the IRS?
If you answered, “I don’t know”, you are not alone. Neither do most people.
We ask this question all the time of clients and prospects we know have a taxable estate. We usually get one of two answers: Either the answer above or, “$0”.
When we review their documents, it is rarely $0.
We think it is because their advisors aren’t asking the right questions.
We find it shocking that people often spend 40 or 50 years accumulating assets and only a few hours planning how it is passed on.
Their advisors usually make two assumptions:
One is that every client wants to divide the distribution of their entire estate equally by the number of children they have. The second is that they want to buy an insurance policy to pay the estate tax amount that will be due, so that every penny of their net worth goes to the kids.
If a couple buys an insurance policy to pay the estate taxes, then, by definition, they are not paying $0 estate taxes. The (often expensive) insurance policy pays the I.R.S.
Here are the questions we would suggest asking yourself before blindly follow the template above:
The most popular concern we hear from families with taxable estates is that they don’t want to ruin their kids with too much money. However, they have rarely had a meaningful discussion with their advisors about how best to address this issue.
The one thing everyone we talk to agrees with is that they would rather give their money to some place (or person) they choose instead of the I.R.S.
If you wish to pay $0 estate tax, you can simply direct the taxable portion of your estate to the charity of your choice. It’s that simple.
Now, every family, of course, has its unique issues. We are not saying that everyone should donate that amount to charity or that they shouldn’t leave everything to their children.
We are suggesting that more time should be spent with a team of like-minded advisors to evaluate all the various options before rushing into a “one-size-fits-all” planning template.
At Archetype, we have a set of twelve principles designed to help families thrive across generations. Check out more blogs from the "Thriving Family Principles" series.
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