>>Estate Planning

Estate Planning

It is about your option between planning while you are alive versus planning while you are in grave. It has nothing to do with how much assets you have or how old you are. As always, we encourage our clients to have a say on their assets today rather than let the court determine who gets what when they are in their graves.

A few reasons for estate planning:
1. To avoid probate
2. Minimize estate tax
3. Designate beneficiaries for your assets

Common misunderstanding:
1. Setting up trusts and wills can avoid estate tax. ( This is not true)
2. Estate tax will be repealed. (That may not happen, estate tax has been a great income revenue for the goverment)
3. Setting up trusts is a one-time task. (Trusts should be reviewed yearly to update your financial status)

How to pay your estate tax:
1. Pay with cash. In such case, you have to save up lots of cash which may have an opportunity cost of a better return.
2. Sell your real estate property. The liquidity of real estate property is low.
3. Sell your stocks and mutual funds. That may or may not be a good way depending on performance of the financial market when you need to cash in, and please remember you have to pay capital gain tax.
4. Borrow cash to pay the tax. Most likely you are going to have a very high interest rate because you need the cash in a hurry, but the worst scenario is that you can't borrow enough to pay the estate tax.
5. Use life insurance. This is the cheapest way to pay the estate tax because the death benefit of life insurance is tax-free. The only concern is that you realize this too late, and your health conditions may not allow you to buy life insurance.


2004 Federal Estate Tax Table


For a Taxable Estate

 

The Federal Estate

 

from

to

Tax Is

Of Amount Over

$ 0

$ 10,000

18%

$ 0

10,000

20,000

$ 1,800 + 20%

10,000

20,000

40,000

3,800 + 22%

20,000

40,000

60,000

8,200 + 24%

40,000

60,000

80,000

13,000 + 26%

60,000

80,000

100,000

18,200 + 28%

80,000

100,000

150,000

23,800 + 30%

100,000

150,000

250,000

38,800 + 32%

150,000

250,000

500,000

70,800 + 34%

250,000

500,000

750,000

155,800 + 37%

500,000

750,000

1,000,000

248,300 + 39%

750,000

1,000,000

1,250,000

345,800 + 41%

1,000,000

1,250,000

1,500,000

448,300 + 43%

1,250,000

1,500,000

2,000,000

555,800 + 45%

1,500,000

2,000,000

Infinity

780,800 + 48%

2,000,000

Common financial vehicles used in such planning:

1. Trusts
2. Wills
3. Life insurance

Additional Tax Information


FOR DECEDENTS
DYING DURING

TOP ESTATE
TAX RATE

APPLICABLE
UNIFIED CREDIT

EXEMPTION
EQUIVALENT

2004

48%

555,800

1,500,000

2005

47%

555,800

1,500,000

2006

46%

780,800

2,000,000

2007

45%

780,800

2,000,000

2008

45%

780,800

2,000,000

2009

45%

1,455,800

3,500,000

2010

Repealed

N/A

N/A

2011

55%

345,800

1,000,000

Please consult our advisors for your questions
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