financial mythology, this fallacy is firmly enshrined: ``I don't
need estate planning.
That's just for the very wealthy.''
In fact, many people are wealthier than they think.
Owners of real estate may be sitting on hundreds of thousands of
dollars in equity. Add jewelry, a vacation home or an inheritance
... and you may need sophisticated estate planning, too.
Careful estate planning has become more important since tax
reform. Just last December, the Revenue Act of 1987 postponed a
decline in the top estate tax bracket and eliminated the benefit of
estate tax deductions and credits for the super-rich.
The same law melted the most popular ``estate freezing''
technique available to business owners - a way to remove future
appreciation in the value of assets from the owner's taxable estate.
As Congress hunts for more revenue in coming years, estate
planning is bound to be affected.
``Those with the foresight to plan now, using the strategies
still available, will be glad they did,'' said Sidney Kess, a New
York-based tax expert.
Whether your wealth is modest or monumental, you should make the
most of the unified credit against gift and estate taxes, which
allows you to transfer up to $600,000 without tax.
And use the unlimited marital deduction judiciously; too much
money passed tax-free this way to spouses can lead to a far bigger
estate tax later on when the spouses will not have a marital
deduction of their own to use.
The stakes are high: estate tax rates range from 37 percent to
Other conventional planning techniques - including life
insurance trusts - can reduce your estate without increasing your
spouse's and these generally suffice for estates of $1 million or
The following are more sophisticated tools.
The Split. One buzzword is the ``split,'' shorthand for a
``split purchase'' of real estate or other types of investment
In the typical split, a parent and an adult child pool their
resources to buy an investment from an unrelated third party. The
parent purchases a life estate (basically, ownership for as long as
the parent lives), and the child buys the remainder (ownership after
the parent is gone).
Each pays the actuarial value of his respective interest; the
longer the parent's actuarial life expectancy, the less the child
must put up for the remainder interest.
Since the parent has only a lifetime interest in the asset,
there is nothing to pass on at death. So the amount the parent
paid for the life estate, plus all appreciation in the asset's
value, has been shifted to the child free of gift and estate taxes.
One caveat: ``In a split, the child must use his own funds to
acquire the remainder interest,'' said Jonathan Skiba, a tax lawyer
with Steven P. Leventhal P.C. in Roslyn, N.Y.
If the parent gives the child the money, the Internal Revenue
Service ``may drag the entire asset'' into the parent's estate,
The GRIT. ``Perhaps the single best estate planning technique
for large estates is the grantor retained income trust,'' said
Howard Zaritsky, an estate planning lawyer based in Fairfax, Va.
This type of trust allows you to transfer a valuable asset plus
all its subsequent appreciation to an heir at little or no tax cost.
Known as a GRIT, the device is an irrevocable trust to which you
contribute property while retaining the exclusive right to its
income or use for any fixed period of time. …