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Author: CCSand Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121477  
Subject: Re: Inheritance tax avoidance Date: 8/5/2001 5:59 PM
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This might more appropriately belong on the Estate Planning board, but there hasn't been any activity there for a month, so here goes:

We're there! We're just waiting for fresh meat! ;-)

My wife and I are in our early 50s, in good health, no kids. Our net worth is above $2M and will surpass $3M if the NAS ever does even a partial recovery. I am a U.S. citizen and she is a Canadian citizen with a Green Card (entered U.S. in '74 with no assets). If I kick the bucket, she will be subject to some inheritance tax because she is a non-citizen and doesn't qualify for the spousal deduction (or whatever you call it) that allows a spouse to receive all the goodies tax free.

That your wife is not a U.S. citizen complicates things. So you have two choices:

1. Your wife becomes a U.S. Citizen. You then set up your basic revocable living trust to avoid probate. With the exemption credit rising significantly in the next few years and then estate tax repeal occuring in 2010, that's pretty much all you will need (along with all the ancillary documents that go with a revocable living trust, e.g., pourover wills, powers of attorney, etc.) BUT the estate tax comes right back in 2011 at a $1,000,000 unified credit per person, unless the legislation is changed to make repeal permanent. (Unfortunately, TMFTaxes' recent article on the new legislation vis-a-vis the estate and gift tax failed to state that repeal was not made permanent. I think this is quite misleading. Other than that one rather major flaw, it was a good article. You can find it here: http://www.fool.com/taxes/2001/taxes010706.htm)

If repeal doesn't actually happen, you will definitely need some tax planning. Most people aren't counting on repeal being permanent, since if they don't plan for it, they'll be hit very hard for not having planned at all.

2. Your wife doesn't become a U.S. Citizen. You need tax planning now because the marital deduction doesn't apply to non-U.S. citizens. If you die tomorrow or sometime before 2010, she pays estate taxes based on the value of your entire gross estate. You can set up a revocable living trust (avoids probate) with QDOT (Qualified Domestic Trust) provisions. This allows a modified marital deduction to apply to your wife. (What this is really all about is jurisdiction over the assets. If your wife leaves the country with the assets, the U.S. loses the ability to tax those assets in the future. If there's no certainty of taxing those assets later, the U.S. isn't going to give a non-U.S. citizen a deduction now. The QDOT gives the U.S. jurisidiction over the assets, therefore, your wife will get the modified marital deduction.)

I know I'm going to have to have an attorney set something up to minimize taxes she might have to pay. I have interviewed several attorneys by phone. Two of them want to sell me estate planning services of sufficient scope as to cover the entire Kennedy family's needs, and a third talked about a simple trust to shelter the money.

While you're not a Kennedy, you're not exactly below the poverty line either. A "simple" trust isn't going to do it unless it includes QDOT provisions. In California, for an estate of your size, it would not be unreasonable to pay between $2,500 to $5,000 for this services. Given that the tax owed without the services would be much more than the cost of the service, I recommend you don't trip over dollars to save pennies.

Good luck,

CCSand
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