Someone once observed: “Death is more universal than life; everyone dies but not everyone lives.”
Living a full life means different things to different people. But an important component of a successful life, for even the modestly wealthy, is to have a plan that controls what happens to that wealth when you “shuffle off this mortal coil,” as Shakespeare had Hamlet note.
A senior U.S. Federal Reserve economist estimates that by 2050, the so-called U.S. “baby boom” generation will pass on to their heirs some $41 trillion in assets, the largest potential inter-generational wealth transfer in world history.
Forbes magazine estimates that in 2007 there are 482 billionaires in America. A record nine million U.S. households had a net worth of $1 million or more in 2006, an increase of 800,000 or 11 percent from 2005.
But in contrast to these impressive statistics, many wealthy people I meet seem unprepared in the proper ways and means of passing on their wealth to their natural heirs or chosen beneficiaries. Perhaps the prospect of acknowledging their mortality blocks needed action.
Classic Case
Jack Kent Cooke was a leading U.S. businessman who grew rich in life, but in death, created financial chaos. The Wall Street Journal reported that when "...he died of a heart attack in April 1997, the 84 year old Mr. Cooke...had amassed a $1.3 billion collection of media companies, sports teams and real estate. But he also left a convoluted will, amended eight times, that named seven executors..." Seven years later, after numerous lawsuits and $64 million in lawyers’ fees, the dust finally settled.
If ever there was another convincing case arguing for prior estate planning, the notorious Anna Nicole Smith's death and the poorly drafted "last will and testament" she left behind should be a clincher. It's a classical example why all of us should act now to avoid such a legal swamp.
A recent study looked at the attitudes and behavior of travelers from the top 5% of U.S. households with annual incomes of over $150,000. It lists the tastes and meticulous demands of the wealthy who seem to know exactly what they want when it comes to service and comfort. One wonders why some people of wealth are not so meticulous when it comes to their personal estate planning.
Good Reasons
There are many good reasons for paying close attention to estate planning. Reducing taxes is a major consideration.
The IRS's latest figures (2005) reveal that the top earning one percent of U.S. taxpayers earned 21.20% of the income, but they still are forced to pay 39.38% of the taxes collected. In other words, the rich paid almost double their share, based upon the income they earned
Both “rich” and the “middle class” Americans get socked with high taxes taxes that may be lowered with smart estate planning. Indeed, one of the potentially highest taxes of all, the death tax, can be substantially cut with proper use of trusts and gifts during your lifetime.
And keep in mind the present U.S. estate taxes are in a political muddle, by law declining now, but possibly snapping back to the highest rates in 2010, especially if both a Democrat president and Congress are elected in 2008.
After 2011, the taxable estate tax minimum will drop down to US$1 million from the present $2 million exemption. And these days, individuals with an entire estate (including real property) worth US$1 million or more are fairly common. That's just one more reason to start planning your estate now.
Act Now
All of this calls for good estate planning advice and prompt action. You've worked hard all your life, why not devout similar energy to assuring your wishes are followed after you've gone?
At a minimum, for the protection of loved ones left behind by wealthy Americans, a will or other means of transferring property, (a trust, family foundation or jointly title property or financial accounts), is a must. (Kids, talk to your aging parents!)
Otherwise, assuming your business and other assets are worth more than US$2 million your family could be stuck with a considerable estate tax burden. In fact, they might be forced to hand over to the IRS 80 percent of your total estate just to pay income and estate taxes.
Offshore Protection
By all means, when you create your estate plan, consider an offshore component.
By taking some of your estates offshore, the offshore assets you leave your heirs enjoy far greater protection from domestic U.S. creditors and lawsuits. Importantly, those assets can remain highly confidential and can avoid the glare and hassle of the American probate process.
You also can pass title and wealth with offshore vehicles such as offshore annuities or life insurance, both of which can allow deferred taxes during your lifetime. An offshore asset protection trust (APT) is another device that both protects assets during life, and provides for heirs afterwards.
My guess is that with the sordid cast of characters surrounding Anna Nicole Smith’s infant daughter, Dannielynn, she may face the same sad fate of the “poor little rich girl,” the late Barbara Hutton.
Hutton inherited the Woolworth-E.F. Hutton millions at the age of 18. At an early age she lost her mother to suicide and her father to alcoholism. Raised by a governess, she married seven times and died a relative recluse, alone surrounded by what was left of her great wealth.
Moral of this story: money does not guarantee happiness, but a well drafted will and a sound estate plan at least guarantees that your heirs, not the IRS, will get their money without all the costly hassle.
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