Reference no: EM13847252
Estate Taxes on Large Retirement Plan Balance: Dr. Norma
Dr. Norma is 68. She has a $10 million IRA, a home worth $2 million and few other assets. She wants to leave all her assets to her three children, and save taxes. Among her concerns are the large minimum distributions she faces in a few years, when she reaches age 70½.
Before considering ways to reduce taxes, we first face the question of how estate taxes will be paid if she dies with this asset picture. Assume a $5.25 million estate tax exemption and 40 percent tax rate on assets in excess of $5.25 million. If she leaves the IRA directly to her children, the executor of the estate will be liable for $2.7 million of estate taxes and no assets with which to pay that tax other than the $2 million home. The executor might have to sue the children to try to collect their share of the estate taxes, or somehow forfeit the estate to the IRS and let the IRS figure out how to collect from the children.
To avoid putting the executor in this difficult position, make sure the person who is primarily responsible for paying the estate taxes also has control of the money! For example, make the IRA payable to a trust, and make sure the trustee is the same as the executor of the estate. That way, the executor can be sure the friendly trustee (himself) does not run away with the IRA money before taxes are paid. Or, make the three children co-executors as well as beneficiaries, so they are primarily as well as secondarily liable for the estate taxes.
Another approach is for Norma to buy life insurance to assure the availability of funds to pay estate taxes. Again, she must make sure that the life insurance proceeds end up in the hands of the person who will need them to pay the estate tax.
Next Norma invites everyone she knows to send her ideas for how to reduce the estate tax value of her IRA (and/or how to reduce the income tax impact of required minimum distributions).
|
Future value-annuity versus annuity due
: What's the future value of a 8%, 5-year ordinary annuity that pays $700 each year? If this was an annuity due, what would its future value be?
|
|
How long will it take to double your money
: If you deposit money today in an account that pays 14.5% annual interest, how long will it take to double your money? Round your answer to two decimal place
|
|
Finding the required interest rate
: Your parents will retire in 25 years. They currently have $300,000, and they think they will need $1,100,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
|
|
Time to reach a financial goal
: You have $34,211.54 in a brokerage account, and you plan to deposit an additional $4,000 at the end of every future year until your account totals $270,000. You expect to earn 10% annually on the account. How many years will it take to reach your goa..
|
|
Estate taxes on large retirement plan balance
: Estate Taxes on Large Retirement Plan Balance: Dr. Norma, Dr. Norma is 68. She has a $10 million IRA, a home worth $2 million and few other assets. She wants to leave all her assets to her three children, and save taxes
|
|
What will be the companys return on equity
: Midwest Packaging's ROE last year was only 6%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 40%, which will result in annual interest charges of $517,000. Under these conditions, the tax rate will be ..
|
|
Find the after-tax cost of debt-cost of preferred stock
: The company can obtain unlimited debt at an interest rate of 10%. The marginal tax rate is 35%. Find the after-tax cost of debt. Preferred stock carries a dividend of $14 and currently sells for $120. Flotation cost on preferred stock is 10 pounds pe..
|
|
Discuss the possible challenges faced by sahara
: Discuss the possible challenges faced by SAHARA and management's responsibility in overcoming - Competitive advantage is the goal of strategic positioning.
|
|
Modified accelerated cost recovery system
: The following facts are presented on an opportunity to invest in Machine A: Cost of equipment is $200,000. The machine has an expected 4-year useful life; it will be depreciated according to the 3-year Modified Accelerated Cost Recovery System (MACRS..
|