Why the Estate Tax Hype is Overrated

Do you hate taxes, or do you hate paying more than your fair share of them? Is your concern how much you pay in taxes or how much you keep of your income and assets? I had a relative who never made over $30,000 per year in income his whole life, yet put all his retirement savings in municipal bonds so he wouldn’t have to pay income tax.

When it comes to estate planning, consider the unpopular federal estate tax – at a 40% tax rate, it is real and has the potential to damage or even destroy a family business. But, despite all the bad press on this tax, it’s overrated. Why? Because, odds are you’re not going to pay a federal estate tax. The estate tax is not aimed at the controversial “One Percent” audience, i.e. the top one percent of income earners. Actually, under the current estate tax rules, it is projected that only one tenth of one percent of estates will be subject to a federal estate tax. The 40% tax, which admittedly is a whopper, doesn’t kick in until an individual dies with an estate in excess of $5.34 million ($10.68 million for a married couple). This eliminates all but the truly wealthy from the estate tax. 

So let’s get out of thinking of estate planning as estate tax planning. For the overwhelming number of estates, there are many other factors than the estate tax that can frustrate a decedent’s intentions. Some of these are lifetime factors which wreck the estate even before death. Others are costs incurred while the estate is being probated and distributed. And, yet, others are caused by lack of liquidity when cash is needed to complete the estate plan. 

Keep in mind, estate planning ultimately involves disposition of your property after you die. In most cases, this means issues dealing with family. The question you may want to ask yourself is, “Does my estate plan pass on the assets I want … to the people I want … in the way I want?”

In my recent Forbes column, I examine this question and other key factors that should be considered in an estate plan before you worry about estate taxes.   

Steve Parrish is a regular contributor on Forbes.com, discussing issues and trends that impact business owners.

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