Filbrandt Reports

Don’t Believe This Common Estate Tax Planning Myth

Volume 18, Issue 17



Executive Summary:

In this report, you will learn:

  • The estate tax planning myth which can prove costly if you believe it
  • The core benefits of estate planning
  • The amount of estate  assets exempt from federal tax under the Tax Cuts and Jobs Act  of 2017
  • Which retirement assets aren’t tax-exempt under current estate tax laws
  • Why professors need a good team of planning professionals

Many professors we meet with have an incorrect understanding of their need for estate tax planning.

When we bring up the subject, often their initial reaction is that they don’t need any estate planning. They have some assets, they tell us, but the value of the assets is well below the $11 million federal estate tax exemption. Because their total asset value is not in the eight-figure range, they believe they don’t need estate planning.

That mindset is a myth. They think the fact that they are likely never to have to pay federal estate taxes means they don’t need to concern themselves with anything other than making sure they have a will in place. We’ll explain in this report why this is incorrect.

The core benefits of estate planning

Estate planning can help preserve the hard-earned, hard-saved capital that the client has accumulated over many years. The core benefits of estate planning are to:

  • Ensure that your wishes, including who will manage the execution of the estate, are followed;
  • Maximize what you leave behind for your beneficiaries, whether they are individuals or causes you support.

We have learned over the years that most professors don't do estate planning. Or, they procrastinate. That's only natural. Who wants to think about death and taxes? Therefore, we’ve learned that helping professors with their estate plans is a service they really appreciate.

If you become disabled before doing any estate planning, a goal you have for a child, grandchild, or some other relative, might slip from your control. Courts and judges can appoint guardians to oversee the affairs of a disabled person in certain situations. If there is no estate planning document, the decision on who makes the decisions will likely fall to a judge instead of you. Planning for the possibility of disability is a key aspect of estate planning.

Don’t Believe This Common Estate Tax Planning Myth

A closer look at taxes on estate assets

The Tax Cuts and Jobs Act of 2017 raised the federal estate tax exemption from around $5 million to around $11 million per person, or $22 million per couple.

While most professors don’t have $11 million of estate assets or more, professors have other assets that are subject to other taxes. For example, professors’ retirement accounts are subject to income taxes, and there are no exemptions for the income tax.

If a professor has, for example, a $1 million IRA or a $1 million retirement account that's well below the $11 million federal estate tax limit, there would not be any federal estate taxes due on it. But there are deferred income taxes, and those deferred income taxes could be as high as 40 to 45 percent between the state and federal governments. Virtually every professor who has a retirement account has deferred income taxes shadowing his or her retirement accounts, and there is no exemption. That is often not discussed by estate planning attorneys, who generally focus only on estate taxes, not on income taxes. Proper planning can reduce or eliminate this tax.


Having the right team in place is important

In estate planning, simple or complex, it is important is to have the right team in place. You don't want to have a part-time attorney, or an attorney whose main focus isn’t estate planning. As simplistic, in many ways, as a university professor's financial profile can be (a house, some group insurance, and a retirement plan), those three assets don't pass by a normal will, or even a trust.

You’re going to need a planner. If you say to an attorney, “I have an old will, and I need a new will,” the attorney will do exactly that for you. But more specific objectives, such as tax planning to maximize what your beneficiaries will receive, takes some consulting, thinking, and planning.

This is where a comprehensive financial planner can be a big help. When the planning is maybe 75 percent done, a financial adviser can take the client to the attorney’s office, present what the plan is, and then review the documents that the attorney drafts.

The adviser can also be the translator, because there's a lot of legal and financial terminology. If the adviser is doing his job, he can make certain that the legalese and investment talk are put in language that the client can understand, so she feels comfortable that her goals are going to be accomplished.

Again, it's a myth to think that you have to have several million dollars to make estate planning useful to you. Filbrandt Private Trust is our company’s trust entity. We can handle all aspects of trusts, from creation to management. For more information on how we can help make your estate goals become reality, visit us online or call 800-431-9740 to schedule a phone or video meeting.


Volume 18 Issue 17

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