A valuable collection could prove to be a component of an high-net-worth estate that needs special handling before the IRS bill comes due. Talk to The Unger Company to develop an outstanding tax strategy.
What the heck is an estate? There’s a simple explanation that comes with a heck of lot of details attached.
A legal definition would read something like this: “An estate consists of all property, real and personal, that is held by an individual at the time of his death.” That seems fairly straight forward. However, once you’re out of the starting gate and begin to encounter the many twists, turns and hills that the tax code lays out before you, things become mighty complicated might fast, especially if you leave or inherit a large estate. Navigating these problems is probably not a hobby most people would choose (masochists excluded).
As estate tax strategists serving high net worth and ultra-high net worth individuals, The Unger Company has deep knowledge of the contents of estates and the methods that are used to help these families avoid estate taxes.
So how do things get cute or tricky? All of the property, real or personal, that is owned are included in a person’s “gross estate.” These can be obvious things such as cash, securities, real estate, insurance, certain kinds of trusts, annuities, shares of a business, etc. However, what about the value of something that isn’t as obvious as cash? What if it is an art collection or if the person who died was a writer or musician who had a lot of rights that could be counted on to produce income long after they died? What if the decedent merely had control (powers of appointment) over certain assets? This is where we at The Unger Company know that things can get tricky.
There are often conflicting ideas of the value of such assets. A catalogue of original music, for instance, that is owned by the person when he/she dies can have one value determined by an expert for the estate, but a much higher value applied to it by the IRS. Consider the Michael Jackson estate where the executor and the IRS differed by MANY, MANY millions. The IRS will not use your expert’s asset valuation but will use its own assessment and will charge back taxes to the estate. You may fight back and win a case against the IRS, but it won’t happen overnight, and you might have to pay the IRS while you’re fighting. If your number or a lower number than the IRS used prevails, your estate will get a refund. Yippee, maybe; pyrrhic, perhaps…
That number the IRS comes to is part of your “taxable estate.” In addition to all the property that can be included as part of your gross estate, the taxable estate also permitted certain kinds of deductions. For instance, loans or other debts, property that passes to surviving spouses or children, expenses related to estate administration, and funds gifted to qualified charities can be deducted. There is also the potential for certain kinds of business to have their value reduced if they meet certain qualifications.
So, what the heck is an estate? All the property, real or personal, that someone owns at the time of his/her death is a good first step. But as you now know, the answer becomes much more complex depending on how you’re looking to arrive at the proper value to assign to this property. In addition to other factors, think reduction in value due to lack of marketability and control – certainly, a topic for another article.
The Unger Company, Ltd. was founded in 1974 by Harold Unger to provide solutions and strategies for the estate tax problems faced by high net worth (HNW) and ultra-high net worth (UHNW) clients. The Unger Company are experts at working with a client’s existing legal, financial, and accounting team to create the kind of structures that provide maximum protection for an estate, enabling succeeding generations to benefit. Contact us through our website or call us at 212-755-4777 to learn what we can do for you.
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Harold Unger LinkedIn: https://www.linkedin.com/in/harold-m-unger-9453aa73/
The Unger Company Ltd. LinkedIn: https://www.linkedin.com/company/93617123/
