Estate Planning Tax Liability For A Middleaged Couple

Q: My wife and I have three children--my oldest boy is 18, , my daughter is 14, and my youngest son is 3. I work as a frontline manager for a construction company and earn about $125,000 a year. I have an insurance policy on my life that is worth $2,000,000 and a self funded retirment plan that is about $250,000. My wife works and has a life insurance of $1,500,000 and a self funded retirement plan worth about $600,000. My yearly salary, my retirement plan, and my wife's retirement plan are estimates. I would like to get an idea for the following scenarios, since I am considering creating an estate plan and would like a general estimate of my liabilities. What would be my tax liability if for some reason that I die before my wife? What would be the tax liability if my wife Ashley died first? What would be the tax liability if I die first and then my wife dies four weeks later within the same year? What would be the tax liability if we somehow die at the same time? I appreciate any relevent advice to help me gauge my liabilities or my wife's or anyone else's if we both pass away.

A: -Those are all good questions to ask but unfortunately the answers are long and filled with "but if..." scenarios. Nolo Press is a self-help legal publisher that has some very good books on estate planning. Even if you don't want to do this all yourself it'll provide an overview of the issues and save you a lot of time once you do work with an attorney. At the very least you'll find answers to the questions you posted as well as a lot that you didn't. You can find the books in a lot of larger book stores or buy them online at www.nolo.com. Try "Plan Your Estate" as a start - I think they may have an outline or overview of that title on the site as well. I keep a current copy here in my office even though it's sitting next to a $300 practice guide on the same topic. -The question of "tax liability" is pretty general. I assume you are not referring to federal income or state income tax. If you or wife or both died in year X the executor of your estate would be obligated to pay those taxes. Your wife, if she survived you, would be liable for those taxes assuming she filed a joint return. As cal-lester says, insurance benefits are not taxable to your beneficiaries but the face value is included in calculating your taxable estate for the purpose of determining how much Estate Tax your Executor will need to pay out of your Estate. This gets into a murky situation, because the estate tax

situation is in a state of flux. Bottom line is that your Estate Tax liability depends on when you die AND any subsequent changes in the law. Currently Estate Tax exemption look like this: IN 2004 1,500,000 IN 2006 2,000,000 IN 2009 3,500,000 IN 2010 NO LIMIT IN 2011 1,000,000 Your Federal Income Tax liability is dependent on how much you earned in the year of your death. The beneficiaries of any "tax deferred" retirement accounts you have will have to pay the tax (or extend deferring) on any amounts they receive. So, there are simply too many variables to be able to answer your "tax liability" question with any degree of confidence. .