Is Uncle Sam The Beneficiary of Your Estate?

Today, ABC News reports that a couple from Washington state left their entire estate, worth over $800,000, to the United States of America.  On purpose.

Estate planning attorneys are more familiar with clients who want to avoid leaving any part of their estate to the government through taxes and administrative expenses.  In fact, this type of efficiency – resulting in more of the estate intact for intended beneficiaries – is often the primary reason people do estate planning.

With the federal estate and gift tax lifetime exemption (that is, the amount of property one person may transfer to another during life or at death without having to pay tax) at an all-time high of $5.43 million, many people think they’re in the clear when it comes to inadvertently leaving something to Uncle Sam.  However, many states, including Pennsylvania, Maryland and New Jersey, have their own estate or inheritance taxes assessed separately from the federal system.[1]  In addition, each state has its own rules regarding estates and property that, if not planned around, could result in fees paid to state or local governments for probate or transfers of property – or worse yet, court fees resulting from litigation or guardianships due to non-existent, incomplete or ambiguous planning.

There are some people who do not mind 40% or more of their estates being distributed to the government when they die.  They consider it a type of charitable donation that will be used to carry out the common good.  However, they are in the minority.

The couple in the news, Peter and Joan Petrasek, intentionally left their estate to the United States.  They had immigrated to the U.S. after fleeing Nazi-controlled eastern Europe during World War II.  The attorney for their estate speculates that they did so out of a sense of gratitude for being welcomed and having lived a fruitful life here.  Whatever their reason for their bequest, they made sure it was carried out by planning in advance.

Whether you want to make Uncle Sam a beneficiary of your estate or not, having solid planning will make sure your intentions for your estate are carried out.

[1] As does Delaware, but the Delaware exemption matches the federal exemption.