The federal estate tax is considered by many to be an instance of double taxation. The critics contend that the assets that comprise your estate are accumulated after you pay taxes on your income or investment earnings.
These assets are not taxable while you are alive by virtue of their very existence. But somehow the event of your death is viewed as a taxable one. And, a taxable one at a rather high maximum rate of 40%.
A recent article in the Wall Street Journal talks about the pattern of evaporating large inheritances. Statistics indicate that on average 70% of inheritance monies are gone after the second generation, and 90% has vanished by the end of the third-generation.
One of the reasons for this is the imposition of the estate tax on more than one occasion. Those who talk about double taxation may be stopping short of the real truth.
If you leave behind a sizable inheritance to your children the estate tax kicks in. Assuming your children do not spend all the money that is taxable once again the estate tax would be imposed when your children leave inheritances to your grandchildren. This can go on and on and on.
In many cases, these impositions of the estate tax coupled with ordinary spending consume all or most of the family wealth.
In spite of the ravages of the estate tax some families are able to retain their wealth over the long haul. Careful planning is key because there are things that can be done to reduce your estate tax exposure over the generations.
One option would be the creation of a dynasty trust, and if you would like to learn about them contact our firm at (631) 265-0599 to set up a consultation.