Illustrative Estate Tax Planning

SCENARIO 1: THE COMMUNITY PROPERTY AGREEMENT

Let's take the hypothetical (but fairly representative) case of Michael and Julie Quinn. They are married, in their late fifties, have three children and a $3 million net worth. When they came to see us last year, the only estate planning they had done was to sign a Community Property Agreement, to pass the estate easily to the surviving spouse in the event of a death. Our discussion with them revealed this approach would, given reasonable assumptions about their life spans, asset growth and the then applicable estate tax exemption, yield the following allocation of their estate after both of their lifetimes.


SCENARIO 2: WILLS WITH TAX PLANNING

It became clear that, by tailoring new Wills and other "contingency plan" documents to better fit the Quinns' needs, we could save their children a great deal of estate tax. We recommended and drafted Trust Wills, Durable Powers of Attorney and Health Care Directives, and a revocation of the pass-at -death provision of the Community Property Agreement.
The likely effect is a tax savings of almost $1 million.


SCENARIO 3: ESTABLISHING TRUST FOR HEIRS

After we completed the contingency-plan documents, we also told Michael and Julie about the further tax benefits of lifetime gifts to children. They were a little hesitant to give significant amounts to their children outright, so we helped them to design and establish a trust for the benefit of their children.
They started making tax-free gifts of $66,000 per year to the trust. Given certain likely assumptions, it will save their children an additional $1.4 million.