Friday, June 30, 2006

Multimillionaires don't leave "all to wife"

Back in the old century, trust marketers learned that married folks took one of two approaches to estate planning:

The untutored left everything outright to their spouses.

The tutored set aside an amount equal to the available estate-tax credit in a bypass trust (income to spouse, remainder to kids) and left the rest to their spouses.

In reality, affluent married folks have been taking a different approach, according to financial planners asked to comment on the ill-fated PETRA. As yesterday's New York Times indicates, affluent marrieds have tended to use their available estate tax credits for direct bequests to the kids (middle-aged kids, typically).

Guess that's not surprising. In a good number of cases, John and Mary raised a family but John is now married to Jessica. His second wife is not too much older than his children.

Even if no pre-nup is involved, John is wise to leave the kids an inheritance at his death. To defer any payout until Jessica's death would scarcely make the kids fonder of their stepmother.

Because of these non-tax considerations, is it really likely that John would change his estate plan and leave everything to Jessica if PETRA became law? I doubt it.

Any contrary opinions?

1 comment:

Jim Gust said...

I agree with you, PETRA won't have much effect on family giving.

And contra to the Times, I believe that PETRA won't harm charitable giving, and it may even help. Money that otherwise might have been lost to estate taxes will be available for charitable giving. Maybe charitable bequests go up when the estate tax falls?

I can't prove it, and neither can the Times. I can say, however, that charitable bequests went up sharply early in this century, even as the exempt amount rose to $1 million, then to $1.5 million. That was likely attributable to stock market increases more than tax incentives.

I can also report that charitable bequests went down in 2005, according to Giving USA, due to a fall in the death rate in 2004.