“In this world nothing can be said to be certain, except death and taxes.”
When Ben Franklin penned those words, he was eighty-three and, as it turned out, only five months away from death. But considering men in his day only lived thirty-six years on average, he had already beaten the odds by a long shot. Did you realize Franklin died on April 17, 1790, just two days after tax day?
In honor of Ben Franklin and with tax day just around the corner, there’s no better time than now to clear up some commonly confused tax issues in the area of estate planning.
Estate Taxes: A Red Herring
The number of people I meet who are motivated to do their estate plans so they can avoid estate taxes is concerning considering how few of us the estate tax really impacts. The truth is, we can pass on over $11 million to our heirs before the estate tax ever enters the picture. But that doesn’t stop potential clients from telling me, “I need to get a will drawn up so I don’t wind up losing everything to taxes.”
I’m not saying estate planning isn’t important (obviously). All I’m saying is estate taxes aren’t a concern for most of us. Instead, taking steps to make sure we avoid probate court should be a much bigger concern.
Capital Gains Taxes: The Monster Under the Bed
When it comes to taxes in estate planning, a much bigger concern should be the capital gains tax. Take for example a couple I met recently who owned a home currently worth around $150,000. They came in to ask me to help them deed their house to their kids so that 1) it would avoid probate court and 2) the nursing home couldn’t get its hands on it if they had major health needs down the road.
This couple was right to be worried about probate court and the high costs of long-term care, but deeding the house now was setting up their kids for a major capital gains surprise when they eventually sell it. This couple bought the house decades ago for $50,000. If they were to deed their house to their kids, and if their kids were to sell it for $150,000, they would have owed taxes on $100,000 in gains! Instead, this couple needed to create an estate plan where the house transferred to the kids at death (not now) without the need for probate court, which would eliminate the capital gains tax all together!
Don’t Do This Alone
There are too many potential pitfalls out there, and too much is at stake, to try to do this on your own. If you’re ready to do your estate planning (and I hope by now you are convinced it’s time), you have to work with a firm that really knows what it’s doing. Navigating the crossroads of avoiding probate court, minimizing taxes, and preparing for long-term care expenses is no easy task, but it can be done.
If you want to read more about it, pick up a copy of my book at our website, ElrodFirm.com. Better yet, if you’re ready to get started now, pick up the phone and set up a strategy session with no cost and no obligation. You need a plan—let us give you a hand.