Legal Update on Estate Planning

Family Wealth Soars

“Who Wants to be a Millionaire?” is a tremendously popular TV show right now, but in real life a good question is, “Are you already a millionaire?” A surprising number of us are, making long-term planning - and especially estate planning - a must.

In 1995, the Federal Reserve estimated that 3 million American families had a net worth of at least $1 million. That number has surely grown in this unprecedented economic boom, and is expected to more than double in the next few years.

Many people are surprised to learn what they’re worth when they add it all up. To find out what you’re worth, add up the current worth of all of your assets, including:

Liquid assets such as certificates of deposit, money market funds, bank accounts;

Fixed assets, including bonds

Stocks and mutual funds

Retirement plans, such as 401 (k) plans, profit-sharing plans, etc.

Personal assets, including your home, cars, etc.

Value of your business, rental property or other real estate.

The next step is to subtract your mortgage and other debt. If the resulting figure approaches $650,000, then some serious estate planning is in order. Federal death taxes begin on estates totaling $675,000, and these taxes can be steep, as much as 55%. Fortunately your lawyer can tell you how bypass trusts, generation skipping trusts, lifetime gifts, and other techniques can significantly lessen the tax load.

Bequeathing Real Estate

Besides their home, many Americans own other real property, some of it located out of state. Maybe it’s a vacation home, or a farm, or rental property or even investment property. It’s not always easy to know how to handle this kind of asset for estate planning purposes.

A main issue is how the beneficiaries view the property. That vacation home may have fond associations for the now-grown-up kids, so of course you’ll want to keep it in the family. One way to do this is through a trust that sets out each child’s right to use the property, establishes procedures to prevent conflicts, and sets up a procedure by which any child may buy out another’s interest in the property.

But if you’re not sure whether the kids have the time or interest to manage real estate, especially if it’s far from home, you may want to explore some options.

A good first step is to get the property appraised to find out what it’s worth, what it’s income-producing potential is, etc. Then it’s important to talk the issue through within the family so that all the generations are on the same page.

And, of course, you’ll want to involve your lawyer, since the decisions you make - such as whether to sell some of it now to convert it into more liquid assets or allow it to pass to the next generation and then be sold - could have significant tax consequences.