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| "THE WORLD'S WORST ESTATE PLAN" Presenting over 100 estate planning seminars each year and conducting over 500 personal estate planning sessions in many years, I see some weird estate plans. But, the worst one I ever saw was one involving a large estate. Showing me a list of properties four pages long, the 70-year-old lady told me that her assets were over $27 million. When I asked how she got that figure, she replied, "That's the assessed value." "How much would IRS say your estate is worth?," I asked. "About double the assessment," she admitted. "But," she continued, "I have plenty of life insurance. So, my children will have plenty and won't have to worry about the government getting it all." Purchasing life insurance is a common ... and, sometimes wise, strategy for dealing with death taxes. So, this statement did not surprise me. But, the next utterance took me aback. "I've told my children to keep the insurance money ... and to just let the government have the properties," she blurted. Unfortunately, she did not understand how the IRS works. For round numbers, let's say that her estate was worth $40 million when she died ... and that she had the $20 million of life insurance (hopefully outside her taxable estate) that it would take to pay the death taxes. If the children told the government to take the property, the government would auction it off to the highest bidder and it might get as little as $10 million. But, IRS would still want its tax on the whole $40 million; it would want $20 million. So, it would come after the insurance money to get its additional $10 million. |
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