(Recorded on 01/18/22) Topics covered on this video coaching call In this special video, trading coach Jerry Robinson answers several member questions about investing, the Federal Reserve, real estate, and the economy. Included in this video: – A...
by John Bearss
Well hi Jerry. Today I would like to discuss what happens to your estate if Congress does not extend the Bush tax cuts on January 1st, 2011.
Estate tax planning is very important to preserving your wealth for future generations. Estate taxes, also called inheritance or death taxes, are taxes that the government takes, on the property that passes to your heirs. The tax depends on the value of the estate.
In 2009, the federal estate tax was 45% on estates worth more than $3.5 million. Estates less than $3.5 million were exempt from federal estate taxes. However, the 2001 Economic Growth and Tax Relief Reconciliation Act changed the estate tax for 2010.
There is an estate tax break between January 1st and December 31st of 2010. So no estates will be taxed at all this year.
But if Congress does not extend the Bush tax cuts, the estate tax will be back starting January 1st, 2011. Estates worth more than $1 million will be subject to a 55% tax and this will impact many families.
So what items make up your estate? Everything that you own like your house, cars, Investments including IRA’s 401(k)’s, Savings Accounts, CD’s, precious metals and even life insurance death benefits that are not properly structured and most life insurance policies are not properly structured to avoid estate taxes. All of these assets count towards the $1 million dollar threshold. So now is the time that many Americans need to start preparing using Estate Planning Strategies that will help them pass more of their assets on to their heirs instead of passing it on to Uncle Sam.
If I were to tell you that there are three beneficiaries to your estate and those beneficiaries are, Your Family, Your Favorite Charity or the IRS and I told you that you could pick two which two would you pick? From my experience, most people would prefer their estate to go to their family and to their favorite charity and not to the IRS. If this sounds like you, then let’s explore a strategy that could help you further the Kingdom of God and still not disinherit your children.
Let’s take a couple named Bill and Nancy. Bill had a large 401(k) where he worked as a salesman. Bill and Nancy had enough income to take care of them through the rest of their lives and only needed a portion of the 401(k) to meet this income need. With the remaining portion of the 401(k) that they did not need to create income and since they had a strong desire to give to their church, I suggested a strategy that would pass the inheritance to their children and their church while leaving the IRS out. We know that the tax time bomb does not go off until after both Bill and Nancy passes away because while one of them is still living they are exempt from paying estate taxes because of the marital exclusion allowance.
So here is what Bill and Nancy did. First of all they rolled the remaining portion of the 401(k) asset to an IRA and named their church as the beneficiary of the IRA. Then we started a guaranteed income stream with this money that was guaranteed to pay an income as long as either Bill or Nancy was still living.
With this income we kept out enough for Bill to pay the taxes each year on the income but with the rest of the income they bought a second to die life insurance policy that insured the lives of both Bill and Nancy to equal the value of the IRA and we named their children as the beneficiaries.
So here is the scenario: Since we named the church as the beneficiary of the IRA, when both Bill and Nancy pass away the church will receive whatever is left in the IRA and since the church is a charity, they pay no taxes. Then since the children were named as the beneficiary of the second to die life insurance policy, when both Bill and Nancy pass away the children will receive an income tax free death benefit and again no income taxes are paid on a death benefit of a life insurance policy.
Since Bill and Nancy’s estate exceeded $1 million dollars because of the second to die life insurance policy death benefit, we incorporated the use of an irrevocable life insurance trust to keep the death benefit of the life insurance policy out of their estate which brought their total estate to under $1 million dollars and their will be no federal estate taxes to be paid.
So by using the combination of a guaranteed income investment, life insurance and a trust we were able to give all of the inheritance to the family and the charity but none to Uncle Sam.
I trust this financial insight has been helpful and I look forward to the next time when I can help you provide the foundation for a lifetime of financial independence.
About John Bearss: John R. Bearss is a Retirement Specialist with the Christian Advisor Referral. He has been helping clients and financial professionals understand financial strategies for 24 years..
Disclaimer: John Bearss is a registered representative of and does offer securities through Sicor Securities, Inc. Lifetime Decisions Management, nor it’s representatives provide legal or tax advice. Please consult your CPA or qualified tax advisor before making any decisions. Lifetime Decisions Management, Inc. is not a subsidiary of nor controlled by SICOR Securities, Inc.