Don’t just wait for death and taxes

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In the past couple of years, most owners of trucking companies haven’t been overly concerned about taxes. Companies have suffered significant losses, and many owners have struggled just to keep their businesses afloat. But in the long run, your estate may be more valuable than you think. Unless you prepare now, your dear old Uncle Sam may show up one day – not to mourn your passing but to claim a huge chunk of the inheritance.

True, last year’s tax law changes greatly benefit estate owners. For persons dying in 2002, the net estate must exceed $1 million before taxes become a concern. In 2004, that limit rises to $1.5 million, and in 2006 to $2 million. Eventually the estate tax goes away entirely, but it reverts back at the end of the decade to terms in place early 2001 unless Congress extends the current law by then.

The exclusion limits seem high, but do you really know the potential value of your estate? Start with the fair market value of your company, net of debt. Then add all of your personal assets, such as stocks, bonds, mutual funds, retirement accounts, homes, cars and collectibles. Finally, deduct personal debts to arrive at your net worth.

By the time you factor in the potential face value of all your life insurance policies, you can see how your heirs could find themselves in a taxable estate situation. That’s why you need a realistic valuation of your company by a professional valuation analyst, careful monitoring of your personal financial statement values and early planning to minimize or avoid estate taxes.

Start by assessing how your assets are titled – yourself, your spouse, jointly, etc. – and having a CPA or certified financial planner determine what your estate tax would be if you died tomorrow. This snapshot gives you an idea of how aggressively you need to pursue your estate tax strategies.

Next, ensure that the wills of both spouses are up to date and include a marital by-pass trust, sometimes called a credit shelter trust. A trust effectively doubles your exemption amount to $2 million in 2002, $3 million in 2004 and $4 million in 2006 – potentially saving hundreds of thousands of tax dollars.

Then, consider the ownership and beneficiaries of life insurance policies. Establishing a life insurance trust could shield life insurance payouts entirely from your insurance from your taxable estate without changing the benefits to your heirs. For large estates, additional life insurance – possibly “second-to-die” insurance – in conjunction with life insurance trusts, can bring additional tax savings and more net dollars to heirs in the long run.

Don’t overlook annual gifts to heirs. You can give up to $10,000 per child or grandchild – and a married couple can give up to $20,000 per child or grandchild – without incurring a gift tax. This could save you $4,000 to $8,000 in taxes per gift. Prioritize income-producing assets or those expected to increase in value in the future, such as your company’s stock.

If you have a very valuable business or collection of businesses, consider Family Limited Partnerships, which let you pass large parts of your business interests to children or others without giving up control. FLPs are most valuable, however, when you use them in conjunction with business valuations of minority shares of a company or a stock portfolio. You can gain additional estate tax savings through qualified discounting of the values. For example, a business worth a total of $1 million when in an FLP, may have an estate or gift tax value of $600,000 or so – saving perhaps $100,000 in eventual taxes. No one likes to think about death and taxes. But while one is a sure thing, the other isn’t – if you plan.

· Estate planning – More than 300 articles for the general public sponsored by, Schumacher Publishing, Inc. (
· “Wills & Estate Planning” section at