Our tax system is just one oddity that I find most people don't believe what they hear about it. With our current system, the government will take at least 30 to 35 percent of what you are earning while you are alive, and will take up to 55 percent of everything you have after you are dead and are not around to replace it. Most believe the first part of this statement about taking up to 35 percent because they know that this is our current income tax. Some of you are lucky enough to live in states with state and local income taxes, so your percentage will be even higher. That's a fact we accept and don't question, but the last half of that statement brings doubt to many minds. Some think that compares to the three-headed snake or the ten-foot tall man. Well, my name is not Ripley, but believe it or not, it's true.
What I am referring to is the federal estate tax system in this country. The estate tax is a progressive tax. I am not referring to the fact that it is ahead of its time. What I mean is that the more you are worth, the greater share they want. It can take as much as 55 percent of the total assets to pay the estate tax at your death, and Uncle Sam doesn't want a credit card, he wants cash. Let's examine this for a moment. Total up all of your assets that you own right now including your equipment, house, any property, other assets, and life insurance if you are the owner of the policies. If the total value is $1,000,000 at your death, your family will have to come up with $345,000 cash, and 41 percent of all assets over $1,000,000. Where would they get it?
If you are lucky and your total is over $2,000,000, it will take $780,000 cash and 49 percent of all assets over $2,000,000. Have you got that sitting in an old cigar box under the bed? Three million will require almost $1,300,000 and 55 percent of all assets over $3,000,000. Kind of makes you wonder if it's worth working hard to accumulate assets just to give them away to Uncle Sam. In affect, you don't own anything. You just lease it, and at your death your family can exercise a "lease-purchase agreement," but it takes cash.
What are you doing with your estate? Are you building assets just to see them fly away to Washington at your death? Isn't that a lovely thought? You work hard all of your life to see all that blood, sweat, and tears go into a federal pot to fund some program to allow our congressman to take some junket to some country that doesn't even appear on a map! I'll bet they won't even send your family a thank-you note for the money! Does that thought make the hair on the back of your neck stand up? It should, because that is exactly what will happen, believe it or not!
There are ways to greatly reduce this estate tax liability, but it has to be done prior to your death. After you are gone it's too late. You need to do the proper estate planning now. There are many trusts and other devices that can be put into place without spending a fortune that can assure the fact that your family will have sufficient funds to pay the taxes and still have the assets available to supply an income stream. Many estates have been totally wiped out by doing what most people do with their estate plans -- nothing. That may be what your family will end up with -- nothing. Is that what it's all for? Is that what you spent all those years in school for?
You say you have a will so you have completed your planning. Well, that is a good beginning but far from the end. When was the last time you had your will updated? Have any major events occurred since you had your will drawn, such as you got married, got remarried, got unmarried, had kids, had new kids, adopted some kids, acquired some additional assets, bought property etc. As you can see, a will does need to be kept up-to-date. I did an article on wills quite some time ago. Now don't tell me you misplaced that article. Send me a self-addressed, stamped envelope to the address at the end of his article and I will send you a copy. I also have some additional information on planning your estate that I will send as well.
Many people mistakenly still believe that estate planning is necessary only for the very rich. Not so. Estate planning should be of utmost importance to all of you reading this article, since most of you will have estates that will be affected by this tax, which will have a significant financial consequence on your heirs.
Remember the old Fram Oil Filter ad? The ad emphasized the fact that if you didn't buy their filter now, it could cost you a lot more in the long run. Their theme was, "Pay me now or pay more later." Our federal tax system goes one step further. Their theme is, "Pay me now and pay me more later," believe it or not
Your comments and inquiries may be directed to:
Stanley Greenfield R.H.U.
12873 Huntley Manor Drive
Jacksonville, Florida 32216
Please include a self-addressed envelope. Thank you.
Further advice on finances is available through Mr. Greenfield's newsletter, Greenfield Chiropractic Financial News, #J-314-C on the Preferred Reading and Viewing List, pages xx.
Click here for previous articles by Stanley Greenfield, RHU.