Estate Planning Answer

ESTATE PLANNING QUIZ ANSWER

This is a basic scenario for your estate planning attorney.

Assume you are a widow(er), age 65, who owns a home worth $150,000. You own other assets of $500,000 from your husband and some inheritances. You want to be sure and leave as much as you can to your daughter and her children when you die. You are aware of estate taxes, but know nothing happened when your husband died. You have established a living trust with your estate attorney and ask him/her if you will have any problems.

What's the answer and how long should it take to get one?

Answer: Yes, and it should take maybe five minutes.

Since the attorney has already fashioned a living trust, he/she knows a lot about you- OR SHOULD.

For example, you are healthy and should live out your actuarial lifetime. That's till about age 83.8.

Your house will grow at the rate of inflation- we'll say 3%.

Your other assets will grow at 7%. A competent estate planning attorney should know that since he/she has a detailed list of everything you own.

When you die, the house will be worth $260,000. The other assets will be worth $1,785,000.

Add together and that's a (rounded) $2,000,000 taxable estate.

The estate tax of $224,200 would reduce the estate to $1,775,800 and the estate is being taxed at 47%. The $224,200 is what your daughter would pay to the IRS as the sole beneficiary. Is that what you want to happen?

Yes, you can offer all sorts of variations to this quiz- the mother would take out money, needs long term care, the assets grow faster, whatever. But my point is that a competent attorney would have done some similar scenario as the information was being gathered and made you recognize the potential estate tax liability along with any possible alternatives. If they could not do this- and you can't do it without competency with an HP12C- you got a bad estate planning attorney.

Frankly, before you engage an estate planning attorney, just give them the numbers from above. If they can't get you the right answers with a calculator in a few minutes max, walk away. Better yet, run because this type of analysis and advice should be second nature to anyone dealing with estate planning or who says they know about money.

2. $1,011,000- you can leave more at death but the limits for gifting while alive are fixed at $1,000,000 (plus annual amounts)