An estate is the kind of thing some people will never think about until it’s either necessary or too late. By definition, an estate can seem like a pretty simple thing.
A “gross estate” is essentially an accounting of everything a person owns or has certain interests in at the time of their death. This is a fair market value, not necessarily the amount paid, and can include cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets. Then the “taxable estate” is determined by subtracting deductions, such as mortgages and other outstanding debts, estate expenses, donations to charities, and property that passes to surviving spouses.
If the amount that is left over is more than $12.92 million dollars (in 2023), then the IRS will apply an estate tax, which is a tax on the transfer of wealth.
This is a high-level, very straightforward explanation. But this is The Unger Company’s business, and we know that this can get more complicated.
One of the biggest areas of conflict between an estate and the IRS is determining the value of assets. Cash and securities are easy, but what about something like the rights attached to a piece of music or a famous person’s name or likeness? And what if someone didn’t take this into consideration as part of an estate plan but intended to leave rights to family members hoping their estate would produce income for at least a few generations? Now you’ve got trouble!
The IRS is going to hire experts who, in The Unger Company’s experience, tend to shoot high on the valuation of various assets. Of course, it’s in the heirs’ and beneficiaries’ best interests to have experts shoot low on the valuation unless the total estate value is less than the $12.2M exemption if the decedent is single and double that if a couple. And here’s the tricky part: An estate may have to pay the tax based on the IRS valuation, go through a multi-year appeal, and then have the tax money refunded by the IRS. Think of all the money that could be lost in terms of interest and earnings via investments, and its enough to give you a big headache.
Then there’s another estate definition: “probate estate.” This is made up of the assets generally controlled by the will and not in a revocable (or irrevocable) trust. This is important because probate is a lengthy, expensive and public process that operates under the guidance of the court system.
So, as you can see, for something that at the top level can seem pretty simple, as you go down the rabbit hole of understanding an estate, it gets more and more complicated.
If you belong to a family that is in the high- (HNW) or ultra-high-net-worth classes (UHNW), having an estate tax strategist like The Unger Company as part of your estate planning team is a key component to creating a wealth transfer plan that will not leave your once-rich family liquidating assets to pay a massive estate tax bill.
The Unger Company Ltd. has distinguished itself as one of the foremost firms in building elegant and effective estate tax plans for the high-net-worth classes. The firm was founded by Harold Unger in 1974, and brings uncommon experience and know-how to this highly specialized topic. Contact us through our website or call us at 212-755-4777 to learn more about how we can help you.
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The Unger Company, Ltd. does not seek to practice law for clients and these published items are intended only to be informational in nature.
