ESTATE TAXES AND SETTLEMENT COSTS, UNBUNDLED

In the next decade or so, when the parents of baby boomers and regrettably the boomers themselves leave us, the question often arises about the legacy they leave behind. Some folks are dead set against any inheritance being passed on. Some do not want to see the government take any more than their fair share. Others want to see their lifelong endeavors pass without encumbrance. These are not standard nor uniform decisions and there is no position of right vs. wrong.

Even though the limits of what can be bequeathed have risen at the Federal level, the issue is not eliminated. States may impose their own schedule of taxation for property left to be passed on which will vary by venue and amount. Indeed, what people often overlook is that pre-tax assets (pension and profit-sharing plans) create a dual tax problem at death; the assets are taxed as ordinary income when withdrawn, AND as an asset of the estate for computation of the death tax obligation. Absent proper structuring, the tax burden on estates composed of mostly pre-tax type holdings compounds, so much so that the potential for shrinkage of what is left to heirs is expansive.

People whose openings that consist of largely illiquid residential or commercial properties also suffer. While these properties may be income producing, the tax bill is due ad payable w/in nine months of the date of death. Oft times it isn't unexpected that assets sold on a "fire sale" to raise cash for estate tax satisfaction w/in nine months can tend to bring in a final result significantly less than market value.

These matters do not abandon the need for life insurance as liquidity for payment of estate tax obligations, but if anything can justify same. If someone has enough love for their family to want to pass on their holdings w/ minimal intrusion or disruption due to potential settlement expense, the tool of life insurance can work wonders.