Financial News & TipsALAN MOORE / L’Observateur / September 13, 2000″I can’t afford it.” “I’m too young to worry about it.” “I haven’t decided what Iwant to do with my assets at this time.” These are just a few of the typicalexcuses that people give for not undertaking estate planning. But perhapsthe most common reason that people put off estate planning is underestimating the value of their estates. Don’t make the mistake ofthinking your estate won’t be affected by estate taxes. Without properplanning, your beneficiaries may be in for an unpleasant surprise.

Published 12:00 am Wednesday, September 13, 2000

Currently, the magic number to remember is $675,000. In 2000, everyindividual is entitled to a unified credit that allows this amount to pass to others free of federal gift and estate tax. So, if your taxable estate isworth less than $675,000 (the exemption equivalent to the unified credit), it probably won’t be subject to federal estate tax when you die. However, ifyour estate exceeds the exemption equivalent in effect at the time of your death, your heirs may have to pay taxes starting at a rate of 37 percent and rapidly rising to 55 percent. The exemption equivalent will increase until itreaches $1 million in 2006.

To find out if estate taxes could end up shrinking your estate, simply put a price tag on all of your assets and subtract your debts. Estimating the valueof your estate is an important step in developing and maintaining a comprehensive and carefully designed estate plan.

Valuing Your Assets People frequently disregard estate planning when they hear that $675,000 (or $1 million) exemption equivalent amount. Since they don’t have $675,000in the bank, they assume that estate planning benefits only wealthy individuals. However, your estate includes the value of all of your assetsless all your liabilities. Many people forget to take everything into account,such as retirement savings, life insurance policies, and household items.

Moreover, the assets you now have, coupled with the assets you accumulate in the future, may appreciate significantly over time. For example, if youhad a portfolio of Dow Jones Industrial Average stocks valued at $300,000 in 1993, it would likely be worth over $1.1 million today due to strong gains inthe stock market in recent years. If the value of your estate has changedsignificantly, be sure to take the appropriate steps to reduce your tax burden and protect your family.

Beware of the Marital Deduction Under the federal tax law’s marital deduction, all assets you leave to your spouse pass estate tax free, no matter how large your estate. However,this tax freedom comes at a price. Estate taxes may end up taking asubstantial portion of the assets that your children will eventually inherit from your spouse. If steps aren’t taken to avoid these hefty taxes, yourbeneficiaries may receive only a fraction of your assets. One way to providefor your family is to arrange for some of your property to pass to a trust that will distribute income to your spouse while protecting assets for future heirs. Also you should ensure that both spouses have sufficient assets tofully benefit from the unified credit.

Fair Market Value Remember that your property is valued at its “fair market value” upon your death (or if elected, at the alternate valuation date, generally six months later). The fair market value is usually defined as the price at which a willingbuyer and seller would exchange the property.

Take the time to add up all of your assets and subtract your liabilities. Areyou surprised at the result? Now, consider what your estate would be worth if your spouse dies first and all of his or her assets are added to yours.

Finally, consider what your total estate would be if it doubled in seven years (assuming about 11 percent annual growth). While the value of your estatemay surprise you, keep in mind that there are several strategies to preserve your wealth and reduce estate taxes. Call your Financial Advisor today forassistance in working out an effective estate plan.

ALAN S. MOORE, who writes this column every Wednesday for L’Observateur,is a financial advisor with Legg Mason Wood Walker Inc., a diversified financialservices and securities brokerage firm that is a member of the New York Stock Exchange and SIPC.

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