FAX 1-800-547-3366





An index and links to our previous months' newsletters can be found at oldnews.html

Andrew D. Schwartz CPA Was Recently Interviewed by Smartmoney.Com and Elegant Bride Magazine

Andrew Schwartz, CPA, the editor of the MDTAXES.COM website, was interviewed by Smartmoney.Com and Elegant Bride Magazine during the month of May. Andrew was asked to provide information and insight on the topic of basic financial planning for newlyweds. The Smartmoney.Com article, entitled Marrying Your Financial Lives, appeared on their site May 26th and the Elegant Bride Magazine article will appear in one of their future publications.

Both of these interviews stemmed from the fun and informative website www.newlywedfinances.com that Andrew Schwartz has put together. If you are a newlywed, this website will help you and your spouse work through an initial financial plan.

The Basics of Basic Estate Planning

Just as most people have at least a basic understanding of income taxes, it is fair to say that most people lack a basic understanding of estate planning. What people find to be most surprising about the estate tax system is that, upon the death of an individual, the government can take as much as 55% of that person's wealth in the form of estate taxes. (I guess they figure a dead person can't complain too much about paying taxes.) You don't even need to be that wealthy to find yourself in the 40% marginal estate tax rate. When you factor in your home, retirement plans, and life insurance, the fair market value of all of your assets that will be taxed upon your death probably add up to more than you think.

How does the estate tax system work?

Anyone who dies this year or next year, the first $675,000 of their assets will not be subject to estate taxes. If a person's assets exceed that threshold, the excess is taxed at the following rates:

Taxable Estate

Marginal Estate Tax Rate

Up to $750,000


$750,001 to $1,000,000


$1,000,001 to $1,250,000


$1,250,001 to $1,500,000


$1,500,001 to $2,000,000


$2,000,001 to $2,500,001


$2,500,001 to $3,000,000


$3,000,001 to $10,000,000


For Example:

Assume an unmarried individual dies with the following assets:

  1. A home worth $250,000 with a mortgage of $100,000

  2. Retirement accounts and IRAs worth $300,000

  3. Non-retirement savings worth $50,000

  4. Life insurance with a death benefit of $500,000

The total taxable estate for this individual will be worth $1,000,000 and the estate taxes on $1,000,000 will equal $125,250!! ([750,000 - 675,000]*.37 + [1,000,000 - 750,000]*.39).

What if you are married?

If you are married, the rules allow you, upon your death, to transfer everything to your spouse estate tax free. Known as the marital deduction, this is a nice short-term solution, as the surviving spouse can take ownership of all of the assets without paying any estate taxes to the government.

Taking advantage of the marital deduction, however, could cause the estate of the surviving spouse to be hit with a huge estate tax bill. For example, assume a married couple who owns the following assets:

  1. A primary residence worth $250,000 with a mortgage of $100,000

  2. Each spouse has retirement accounts worth $300,000

  3. Total non-retirement savings worth $100,000

  4. Each spouse has life insurance with a death benefit of $250,000

When the first spouse dies, all of the assets transfer to the second spouse. When the second spouse dies, the taxable estate is worth $1,350,000 and the estate will be subject to estate taxes of $270,750. ([750,000 - 675,000]*.37 + [1,000,000 - 750,000]*.39 + [1,250,000 - 1,000,000] * .41 + [1,350,000 - 1,250,000]*.43) By taking advantage of the marital deduction, the spouse that died first did not benefit from the $675,000 exclusion available to him.

What can be done to minimize the estate taxes?

One of the principals of basic estate planning is to make sure that each spouse takes maximum advantage of the $675,000 exclusion. To minimize the estate taxes that will be paid upon the death of you (and your spouse), there are three steps that you need to take.

  1. If you are married, you and your spouse must each have your own will. As part of the will, trusts should be established and funded upon your death.

  2. If you are married, you should not hold any of your assets jointly. Instead, each asset should be held by either you or your spouse. (Holding assets jointly will make them unavailable to fund the trusts upon your death.)

  3. If you hold significant life insurance, the insurance should be owned by an irrevocable trust with the beneficiary of the life insurance being the trust. (Insurance held in an irrevocable trust avoids being part of your taxable estate.)

Let's work through another example. This time, assume the married couple has two assets: stock in Company A worth $675,000, and stock in Company B worth $675,000. Earlier this year, this couple met with capable estate planning attorneys, had two wills drafted, and changed the ownership of Company A to the husband's name and Company B to the wife's name.

Two weeks after all the documents were properly executed, the husband died. Instead of having the stock of Company A go to his wife via the marital deduction, the will instructed that the stock be used to fund a trust. If necessary, the wife can use the income and assets of the trust to maintain her lifestyle, but otherwise, the trust will stay intact and will go to the husband's heirs upon the death of the spouse. Since the amount that funded the trust was worth $675,000, the husband's estate was not subject to any estate taxes.

Two weeks after the husband dies, the wife unfortunately dies as well. As instructed by her will, the stock of Company B passes to her heirs. Since the value of the stock is only $675,000, there are no estate taxes to pay. In addition, the stock of Company A, which is in the trust, also passes to the heirs estate tax free. By having two wills, and making sure that no assets are held jointly, a married couple with assets of $1,350,000 can avoid paying any estate taxes. If you look at the earlier example in which the couple took advantage of the marital deduction, the estate of a couple with assets of $1,350,000 who did no estate planning ended up paying $270,750 in estate taxes.

Good News for People Who Live Beyond 2001

The estate tax threshold will continue to increase until it tops off at $1,000,000 in 2006. Below, is a table detailing how much wealth a person can pass to his heirs without being subject to estate taxes:

Year of Death

Assets Not Subject to Estate Taxes

2002 - 2003








Other considerations to think about

While you're meeting with your estate planning attorney, you should ask him to draft a durable power of attorney and a health care proxy.

  • Durable Power of Attorney: These allow a specific named person to make financial decisions on your behalf in the event you become mentally or physically unable to do so.

  • Health Care Proxy: These allow a specific named person to make medical related decisions on your behalf in the event you become incapacitated


Disclaimer: This issue of estate planning is extremely complicated. Do yourself a favor and meet with a qualified professional.



Income Taxes

Saving and Investing


  • 2ND quarter estimates due 6/15/00

  • Income tax returns for Ex-Patriots due 6/15/00

  • Determine if you are on track to meet the savings and debt reduction goals you set back in January

1999 & 2000 TAX FACTS

  • For 1999, the standard deduction for a single individual is $4,300 and for a married couple is $7,200. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. For 2000, the standard deduction for a single person will be $4,400 and for a married couple will be $7,350.

  • For 1999, the personal exemption is $2,750. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. For 2000, the personal exemption has been increased to $2,800.
  • The maximum earnings subject to social security taxes has been increased to $76,200 in 2000 from $72,600 in 1999.
  • The standard mileage rate has been increased back to $.325 per mile as of January 1, 2000 from a rate of $.31 per mile as of April 1, 1999.
  • The maximum annual contribution to a 401(k) plan or a 403(b) plan has been increased to $10,500 in 2000 from $10,000 for 1999.

Home | Monthly Tax Newsletter | TAX FAQS | Retirement Savings Calculator
Financial APGAR Test | Income Tax Services | Offices | Search Our Site

The MDTAXES Network
(800) 471-0045 ~ fax (800) 547-3366

E-mail us at: cpa@mdtaxes.com