It's an old story. When the well-off parents died, the family didn't get nearly as much as they had expected, because estate taxes were so high that the family business or property had to be sold to pay them.
"Transferring assets to heirs can be expensive and risky, or tax-efficient and safe, depending upon your estate plan or the lack of one," said Julie McKinley, vice president of personal financial planning at The Northern Trust Co.
"Careful estate planning can avoid possible problems in the preservation and growth of assets and also provide adequately for current living expenses and future needs," McKinley said.
Asset protection is the primary goal of any estate plan
"The complexity of the tax laws makes it practically impossible for a non-professional to set up a fool-proof plan, but professional planning will more than pay for itself in estate tax savings," McKinley said.
Any amount of assets can pass to a surviving spouse without estate taxes because of the unlimited marital deduction in the tax laws. However, no such deduction is allowed when the surviving spouse dies.
"The substantial taxes that an unplanned estate may then encounter are unnecessary because they can be avoided entirely, or at least greatly reduced, by establishing one or more carefully structured trusts," said McKinley.
Managing family assets requires investment expertise
In addition to preservation, assets of an estate need continuing growth in value to counteract inflation and provide for increasing needs of the family. Investment decisions for a substantial estate demand solid financial experience, both during the settlement period and after assets are distributed.
The estate plan can specify that assets be placed in a protective trust with a professional asset manager as trustee who will be responsible for the financial welfare of family members in light of their ages, states of health and experience in managing money.
Assuring the viability of a family business
"Keeping a closely held business in the family and assuring its viability is often a major concern in estate planning. The transfer of ownership must be handled carefully, and professional help usually is essential to assure its tax efficiency. Business owners do well to plan the management succession long before the time when it is anticipated to take place," said McKinley.
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Refer to Personal Banking services: Investigate successful business succession |
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