subject: How to Reduce Income Tax [print this page] How to Reduce Income Tax How to Reduce Income Tax
How to Reduce Income Tax
Most American citizens are deeply conscious of income taxes and seek a variety of legal ways for reducing these taxes. Veryfew, however, are aware of the fact that probate costs, andparticularly the cost of administration of one's estate where noWill has been made, can seriously invade what a man hasbuilt up for his family in the event of death. Furthermore, the invasions of estate and inheritance taxes can result in further diminutions of the net estate passing to a man's family. However, just as good financial management can reduce the cost oflivingincluding the inevitable "bite" of taxesso estateplanning can reduce the cost of dying.
Learn More About Life Estate Planning
Most of these illustrations discussed here are based on thepremise that the interested individual enjoys a good relationship with his wife and family and is anxious to see them aswell off as possible at his death. Indeed, this has been theunderlying concept of this entire bookyet, it seems to re quire underscoring at this point, because it is when a man is faced with actually transferring certain assets to members of his family that questions begin to come up in his mind. Hebelieves in providing for his family as an abstract principle,but the actual implementation of these provisions may be apainful process to him. Is son John capable of holding ontohis money, or have those years at an expensive prep school which his grandfather could not afford for his father and hisassociation with wealthy boys at an old New England collegeresulted in a diminished ability to hold onto money? Willdaughter Sally's marriage work out or will her husband at
tempt to take over the management, and put her money intoinvestments which may be too speculative?
An elementary technique of cutting down the cost of dyingis to have some of the assets owned jointly by the husbandand wife, or by the parent and the child with right of survivorship expressly provided. While this will not necessarilylessen the estate tax, since the authorities will often go behindjoint ownership to see who, in effect, provided the assetsmaking up the joint property, it will lessen materially the administration costs of the estate, as jointly held assets pass directly by right of survivorship, are free of estate administration, and are not calculated as part of the estate in determining administration fees and similar expenses.
In like manner, the proceeds of life insurance policiesowned by the decedent, although includable in the estate forestate and inheritance tax purposes, are not included in theestate for administration purposes. Since the proceeds are paiddirectly to the named beneficiaries by the insurance carrier, administrative costs are substantially reduced. In addition, theproceeds of insurance policies within the limitations and provisions of State law are protected from creditors. If the policiesare actually owned by the beneficiaries, and if the insured has given up all of the indicia of ownershipsuch as physicalpossession of the policy and the right to change the beneficiarythe proceeds of the insurance policy may even beexcluded from the taxable estate, saving many dollars hi estate and inheritance taxes.
