Many people tend to overlook the likelihood of being hit with certain taxes because they aren’t considered “rich.” But according to a New York Family Lawyer, many upper middle-class families could be hit with an unplanned tax rate as high as 35%.
Currently the law provides an exemption for estate taxes of up to $5 million for those who die in 2011 and 2012. What many families are unaware of is that this amount can easily be exceeded when you take life insurance coverage, a valuable home, healthy retirement balances and other assets into account.
“Don’t forget to count any private business ownership interests such as shares in a family corporation or partnership,” explained a New York Custody Lawyer.
He continued and sited an example of a divorced single parent. “She earns a healthy salary, she has a $4 million term life policy to provide for her three teenagers, has $800,000 of equity in her home, $1 million in retirement plan accounts, and $500,000 worth of assorted personal assets (cars, clothes, furniture, jewelry, and so forth). She has no debt other than her mortgage and because she has never considered herself to be anything close to ‘rich’ she has never done any estate-tax-avoidance planning.”
The lawyer explained that if this mom died tomorrow, her estate would be worth $6.3 million for federal estate tax purposes ($4 million + $800,000 + $1 million + $500,000), and her estate would accumulate a state bill of $455,000. Her children would have to pay this bill.
This scenario is all too common states a Nassau County Family Lawyer, and claims that for unmarried people, high life insurance coverage is the biggest culprit for unexpected federal estate taxes. Married couples, he sited have an advantage because of the unlimited marital deduction privilege. This deduction is only good for U.S. citizens, he explained.
Lawyers are now recommending to their clients setting up an Irrevocable Life Insurance Trust. This basically helps avoid traditional estate taxes on the life insurance policy because it is not officially owned by anybody. The only catch is if you die within three years of setting up the trust your family is subject to estate taxes.
In the end, Stephen Bilkis and Associates urges folks to talk to a professional to assess their situation. Although many families think they are exempt, often times they are not and only a professional can make the right recommendation. “It’s money well-spent,” one lawyer concluded.
Unexpected taxes can put a family in financial ruin. Stephen Bilkis and Associates will help reveal possible taxes your family could incur. Come in today for legal guidance and a free consultation. We have offices to serve you throughout New York City, as well as Long Island and Westchester County.