Tahoe-Trucke Market Beat: Planning for your death is important
May 2, 2016
"In this world nothing can be said to be certain, except death and taxes." That quote is attributed to Benjamin Franklin who penned the phrase in a letter to Jean-Baptiste Leroy.
The legendary musician Prince just died and left an estate worth an estimated $250-$300 million. He also died without an estate plan, even a basic one. It looks like his main beneficiaries will be the Federal and Minnesota State governments. The combined state and federal tax due on his estate will approach 50% of the total estate value.
The Federal estate tax rate is 40% on the amount above $5,450,000. Minnesota's estate tax rate can reach 16%. It looks like about half his estate will go to taxes. Prince's estate will also be difficult to value because much of it consists of intellectual property, like his image and his name.
Prince's estate will be handled by the local probate court, which will have to decide who gets what since he left no instructions. The settling of his estate will be a lengthy and costly process.
Since we know that death and taxes are a certainty, it makes sense to plan for them. A simple will can be drafted by hand and in California does not even require a notary to be valid.
Most people should go beyond a will and take the time to establish a revocable living trust. Assets titled in the name of a trust will skip the probate process entirely and can be distributed directly your beneficiaries. A will, also known as a pour-over will, should be used in addition to a trust to cover any assets not included in the trust.
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In addition to a will and a trust, most people should have a durable power of attorney and a medical power of attorney. A durable power of attorney gives someone the ability to make decisions for you in the event you become incapacitated. A medical power of attorney is similar and used for making medical decisions.
People fortunate enough to have estates large enough to be subject to estate taxes can lower or even eliminate taxes through charitable giving. There are several varieties of charitable trusts that can be used to transfer funds to your favorite charities and that also allow you to draw income while you're living.
Don't procrastinate — make an estate plan and update it periodically.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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