The Parental Responsibility of Estate Planning Tax-savvy ways to ensure that your children are financially secure after your death
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One of the fringe benefits of being a successful entrepreneur is that you can afford to be generous to your kids. Giving them an extra card on your American Express account, taking them on a Caribbean vacation and paying for an Ivy League education can all be done without breaking the bank.
But when it comes to transferring real wealth to their children, many entrepreneurial parents never get around to it. They're just too busy running their businesses to think about planning for an event--their death--that might be decades away. That can have devastating tax consequences if they die before they put an estate plan in place.
Michael Schwartz, a New York City certified financial planner and a managing director of Pioneer Financial, recalls a client in his late 40s who owned a thriving manufacturing business and dropped dead of a heart attack, leaving a wife and three young kids. After his death, the IRS valued the business at $6 million, far more than the $1.5 million the business owner had told his financial adviser he thought it was worth. Because the manufacturer hadn't gotten around to moving his life insurance policy into a trust for his kids, the policy was considered part of the couple's taxable estate. By signing a single piece of paper, the manufacturer could have spared his kids from paying federal estate taxes of as much as 45 percent on $3 million in insurance proceeds.