Inheritance tax laws are a mystery to many, Prudential says
Baby boomers are largely unaware of how federal estate taxes could affect their inheritance, according to a survey by Prudential Life Insurance Co. on estate planning strategies. Half of those surveyed called themselves "unaware" about how to reduce inheritance taxes on assets they inherit, or on assets which they will leave to a spouse, relative, or child.
Sixty-five percent of survey respondents feel that estate planning is useful only for very high net-worth individuals. However, they may not be aware that their total accumulated assets can easily total more than $675,000, the amount at which the federal government begins taxing estates. To determine the worth of their assets, Prudential recommends that clients total their savings, the market value of their home, the value of all retirement plans such as IRAs or 401(k)s, and the value of any life insurance policies.
More than half of the survey's respondents did not have a valid will, a major component of estate planning.
"Some people simply take available cash from the inheritance to pay fees and estate taxes," says Jim Avery, Prudential's president of individual life insurance. "Those who plan ahead will often purchase life insurance policies specifically to pay inheritance taxes."
Avery recommends, in addition to a valid will, that people planning an estate also name a guardian for their children, review the beneficiaries of their retirement plans and life insurance, complete a living will with health care power of attorney, and create a durable power of attorney.