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Plan While You Still Can

Shimmy Blum

Estate attorneys and planners worked feverishly during the final months of 2012 to help families beat changes in inheritance tax laws. If you missed out, there are still ways to limit the potential tax bills of your heirs — including gifting a portion of your assets beforehand — provided you plan ahead.

Wednesday, January 16, 2013

courtDeath is an unsavory thought for most everyone, but the myriad financial, emotional, and halachic complexities that can haunt spouses, children, and other heirs due to improper estate planning are far less desirable.

The deal reached in Congress to avoid falling off of the fiscal cliff included an increase in estate taxes from 35 percent to 40 percent for estates valued at $5 million or above per person. This percentage excludes any applicable state taxes.

While $5 million sounds like a large estate, it is relatively common considering high real estate values and the fact that every one of the decedent’s assets, including the home they live in, investment properties, bank and brokerage accounts, stock and bond certificates socked away in a safe or under a mattress, and silver and jewelry, must be counted toward the estate value under the penalty of perjury. While Congressional action prevented the estate tax exemption from reverting to its former level of only $1 million, politicians eager to raise taxes on the wealthy are likely to revisit this issue at some point in time.

Willful Thinking

The exemption from estate taxes applies to the assets bequeathed by each individual who dies.

Therefore, for a married couple, as much as $10 million of their estate can be exempt from taxation when their heirs gain control.

But a family still needs a valid will. If there is no valid legal will or other estate planning, all of a person’s assets are distributed after death according to the law of intestacy (dying without a valid will), which varies slightly from state to state.

InNew York, a living spouse inherits the first $50,000 of the estate plus half of the remainder. The other half is evenly distributed between all children. If there is no surviving spouse, the children divide it evenly.

If the deceased is survived by neither a spouse nor children, the estate goes to the closest relative. If there is no living relative that is a descendant on the level of a grandparent or closer, then the state government takes control of all assets.

Since most people will typically have other arrangements in mind, legal planning must be undertaken to ensure compliance with their wishes.

And unlike most other areas where there is a financial dispute, the law does not recognize the decision of a beis din or other halachic authority in matters of inheritance even if all involved parties agree to use that body for arbitration. Because of the halachic aspects of inheritance laws, it is highly advisable for both a rav and attorney to be consulted when making estate plans to make sure that the will is valid according to both halachah and the law of the land.


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