Part 2 of a 3-Part Series
Last week, we started discussing the celebrity estate for the late rock-n-roll star Meat Loaf. Click here to read part one of that post. This week, in part two of our series, we cover tax planning as well as what to do if adopted children or special needs kids will be heirs.
Estate Tax Planning and the Lifetime Exemption
Most people need not worry about the federal estate tax. However, this concern arises for high-net-worth individuals like Meat Loaf. Thankfully, they can avoid issues with thoughtful estate and tax planning.
In general, the estate of an individual who dies in 2022 does not face estate tax unless net worth exceeded $12.06 million. The amount of the lifetime gift tax exemption ties directly to the estate tax. Fortunately, by gifting heirs over the course of their lifetime, a taxpayer reduces the value of their estate at their death. This eliminates or reduces estate taxes. What’s more, certain gifts reduce the taxpayer’s remaining estate tax exemption at death. However, a married couple can combine their exemption amounts because the first spouse’s remaining estate tax exemption can be “ported over.” Alternatively, they can transfer the estates to the surviving spouse.
Tax Planning for Celebrity Estates
An estate worth $40 million, such as Meat Loaf’s, owes estate tax. However, myriad ways exist to avoid or defer paying tax. One example is to use the unlimited marital deduction to leave everything to a spouse. This option allows someone to transfer their assets (accounts and property) to their U.S. -citizen spouse at any time. This extends to their death. In this case, they would not incur gift or estate tax.
Bypass Trusts
Using a bypass trust is another way to avoid the estate tax. In this case, Meat Loaf could have created a trust to hold an amount equal to his unused individual lifetime exclusion amount ($12.06 million), with any excess passing to his wife either outright or through a marital trust, therefore bypassing estate tax liability. Meat Loaf’s wife would probably be a beneficiary of the bypass trust, so this approach is just a variation of leaving everything to her. Though this structure is more restrictive than a 100 percent outright distribution, it can offer some creditor and asset protection benefits.
Estates & Adopted Children
Under the law, adopted children are treated the same as natural-born children. Most parents of adopted children agree with this stance, and there is no indication that Meat Loaf would have wanted to depart from it.
Some parents, though, treat their children differently in their estate plan, not because they do not care for them equally but because the children have different needs. Such differences can be reflected in the estate plan.
Meat Loaf’s Daughter: Celebrity Estate Examples
For example, Meat Loaf’s daughter Pearl is married to a member of the band Anthrax. In fact, Pearl is a musician herself. Not only does she have her own band, she also toured with her father for several years. It is a good guess that, between herself and her husband, Pearl is already financially well-off and not dependent on her father’s inheritance.
Her sister, Amanda, an actress who has appeared in popular TV shows and movies, is probably not hurting for money either. But if one sister was financially successful and the other was not, Meat Loaf might have made a provision in his estate plan that directed a larger share of his assets to the child with greater financial needs.
Check back next week, when we conclude this series by examining estate planning concerns for blended families. We will also cover the importance of privacy in celebrity estates such as the one developed for Meat Loaf.
About Skvarna Law Firm in Glendora and Upland, California
A skilled attorney can assist with your estate plan. Contact us today to learn about your options (909) 608-7671. We operate offices in Glendora and Upland, California. We provide legal services for individuals living in San Bernardino, Los Angeles, Orange and Riverside Counties. This includes the cities of Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Montclair, Pomona, La Verne, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
