#RichLifeLawyer Show 028: Should I Prorate Estate Taxes?

#RichLifeLawyer Show 028: Should I Prorate Estate Taxes?

A question we get often at the firm is “should I prorate estate taxes?”

Because it is such a frequent question (and because it really matters) I thought today would be a great day to answer it.

Here are just a couple of topics covered in today’s show:

  • What does it mean to prorate estate taxes?
  • What are my options?
  • What is the best option?
  • What is the worst option?

To find out the answers to these questions and more, watch the video below…


Christopher Small

P.S. I’ve created a FREE report: 7 Estate Planning Mistakes Every Family Needs to Avoid. To access the report click here.

Christopher Small is a Kirkland estate planning attorney who helps people get rich and live forever. He is also the owner of CMS Law Firm LLC.

Should I Prorate Estate Taxes Transcript

Hey everybody welcome to episode twenty eight of the Rich Life Lawyer show. I’m your host, Christopher Small, the owner of CMS Law Firm and resident estate planning attorney. Super pumped to be here with you today. This is a question that I get asked quite often. And I thought I’d take an opportunity to answer but before I get to the question, I want to let you know about a special free report that I’ve put together. It is called the seven estate planning mistakes every family needs to avoid. And I put this report together because again, this is them that I see all the time. It is something that is easy to fix and easy to take care of. And if it’s not taken care of, it can really really result in dire consequences. These seven things, these seven mistakes include things like guardianship, wills, trusts estate taxes and on and on. And there are some things in this report that I know will make a difference in your life off for the better. And it’s free. So to check it out just go to cmslawfirm.com/seven that’s cmslawfirm.com/seven. See it, you have to check it out. And I know you’ll like it.

Alright, so today we’re talking about estate taxes and whether or not you should prorate your estate taxes. Before we get into whether or not you should prorate, I first want to talk briefly about what estate tax pro-ration really means. And the easiest way. Well the sort of the definition I guess in a nutshell is pro-ration is spreading the tax out evenly among people that would receive gifts from you according to the amount of the gift that you gave them. So for example, if you had a million dollars and there was somehow going to be some of tax associated with those million dollars and you gave fifty million, five hundred thousand dollars of that to your nephew, Jim. And then you left the rest of that to go to the rest of your family. If you pro-rated your tax then because you gave fifty percent of your assets to Jim, Jim’s share would pay fifty percent of the tax bill. And the residuary which is what was left would be paid by, would pay the other fifty percent. Now that is pro-ration. If you do not pro-rate you can choose to have the residuary pay the entire book, the entire amount that would be owed by estate taxes. So in this example if you do not pro-rate, Jim would receive his entire five hundred thousand dollars and the residuary, your heirs would to pay the estate tax on the entire one million.

Makes sense? Good. So those are basically the two options that you, I mean you know I guess if you really wanted to you could, you could spell out specifically how you wanted the taxes to be paid. You could do that. You can pretty much do whatever you want when it comes to estate planning. But those are sort of your two general options. Now what is the best option? And the answer to this is really going to be. It’s up to you. You know, estate planning is a very personal thing. The decisions that you make are yours and yours alone. I always tell my clients that there are no right ways to do anything. There’s only the way that accomplishes your goal. So if fairness is your goal, you may want to pro-rate. If fairness is not your goal, and you have some other goals that trump fairness, then you may want to go that way. But really it’s up to you. But the important point, the important part of all this is just to make sure that you are making choices that are informed. That you are educated about what it actually means to pro-rate your estate taxes and are making that decision based on having all the knowledge around these concepts.

Okay, although, and to take it one step further. Although there is not a best choice. There is a worst choice in the worst choice as always is doing nothing. You don’t spell out how you want the taxes to be handled. That means everyone has to guess, everyone has to fight about it. Everyone has to argue. Whereas if you make a choice on what that tax pro ration makeup is, then there’s no question. Your wishes are clear. The actions will be taken by the personal representative or the trustee. And everybody will get what they get. Which is fine. Now, I’m curious about what you think generally and I would love for you to leave a comment here. Either on the blog, if you’re looking at the, are watching this video on the blog post. If you’re on Youtube, leave me a comment on Youtube and tell me this. What do you think is the right choice when it comes to pro-rating taxes and why? I can’t wait to talk to you soon. And remember, if you want to get that free report, Seven Estate Planning Mistakes Every Family Needs to Avoid, You can just go to cmslawfirm.com/seven. Talk to you soon. Bye.