Magazine article The CPA Journal

The Never-Taxed Estate: Why Rich People Should Consider Trophy Wives and Husbands

Magazine article The CPA Journal

The Never-Taxed Estate: Why Rich People Should Consider Trophy Wives and Husbands

Article excerpt

Once upon a time in a land far, far away there was an old king. Over the many years of his life, this king had accumulated great wealth. Unfortunately for him, he lived in a time where the fairy-tale monarchy in the far, far away land had been surpassed by democracy. Therefore, the king could not issue proclamations that would safeguard from taxation his gold and silver, his pearls and diamonds, and everything else he owned, when transferring them to a younger generation at death. In fact, the tax rates on wealth transfers in the far, far away land reached almost 50% (45%, to be exact). The confiscation of almost half his wealth by some fiscal authority was of great concern to the king. He therefore summoned his oldest and wisest councilor and demanded a plan to legally nrinimize or eliminate taxation on his estate and keep it from ever being taxed. The councilor thought long and hard. He consulted large books containing the tax code, regulations, rulings, as well as decisions made by lower and higher courts. Finally, the councilor came back and presented the following plan:

"King," he said, "it is simple: You must marry someone who is much younger than you. Your will must state that all your wealth (beyond the exemption equivalent of the unified credit of currently $3.5 million) shall be transferred to your new wife. Because of her young age, she will outlive you and inherit your silver and gold, your pearls and diamonds, and everything else.

"In order to ensure that the wealth also escapes taxation when she dies, she must remarry after your death. Her testament must also state that everything beyond the exemption equivalent transfers to her second husband. The person she remarries again must be much younger still, so that your widow's second husband will outlive her. This must be repeated over and over again, and each time the unlimited marital deduction available for transfers between spouses will ensure that your wealth is transferred untaxed. Your gold and silver, pearls and diamonds, will be passed on from generation to generation without ever being touched by the fiscal authorities."

"This is brilliant!" the king exclaimed and smiled at the prospect of marrying a young and beautiful woman. He thought about what the councilor had said. Suddenly, he stopped and looked up: "What happens if the younger spouse dies because of an accident or disease?"

"Well, I thought of that," the councilor responded. "In the case of this urtfortunate event, the older spouse must remarry as soon as possible so that the marital transfer deduction will be available when the older spouse dies. …

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