Naperville Estate Planning Lawyer Discusses the Impact of the Estate Tax

estate tax, Naperville estate planning attorneyThroughout the 2016 presidential election, one of the many points of disagreements between the candidates was the issue of the estate tax. The estate tax—sometimes referred to as the “death tax”—is the portion of a deceased person’s estate that must be paid to the federal and/or state government before the remainder of the estate can be divided among the person’s beneficiaries.

In my practice as an estate planning attorney, I am often asked if the estate tax applies to every situation. According to federal and state laws, the answer is no, the estate tax does not always apply, but when it does, the impact can be dramatic.

A High-Profile Example

Pop superstar Prince passed away last April from an accidental overdose of painkillers. The Minnesota-born music icon was well-known for being very cautious regarding his business deals and the rights to his songs but seems to have been less diligent in managing his estate overall. No will or other estate planning documents have been found, meaning that his $250 million estate has been left in the hands of the courts.

Unfortunately, this means that a large portion of the estate will be headed into the coffers of the federal and state government. The federal estate tax rate tops out at 40 percent and the rate in the state of Minnesota ranges up to 16 percent. Tax experts have speculated that after accounting for exemptions and deductions, taxes will consume approximately half of the late musician’s estate.

As Prince’s estate tax bill comes due, financial commentators from around the country have observed that much—if not all—of the tax obligation could have been avoided with proper estate planning.

Preparation Is Crucial

Here in Illinois, the state-level estate tax can also range up to 16 percent. You do have options, however. There a number of strategies that can be employed to limit the tax liabilities to your estate following your death, including properly-developed trusts. When transferred to a trust, most assets are no longer considered part of the taxable portion of your estate. They can be set aside for family members and loved ones rather than given to the government in the form of taxes. As one tax lawyer noted on the Prince example, “The reality is there are only three options. There’s family and friends, there’s charity, and there’s Uncle Sam.” With qualified help, you can legally and ethically limit the portion that goes to Uncle Sam.

If you have questions about the estate tax and whether it will apply to your situation, contact an experienced Naperville estate planning attorney. Call The Gierach Law Firm at 630-756-1160 for a confidential consultation today. We will assist you in understanding your options and will work to protect your family’s financial future.

 

Sources:

Billboard

Chicago Tribune

Kiplinger