Estate Planning – What’s It All About Alfie?!




Charles L. Kern


“What’s it all about Alfie” (for the benefit of you non-baby boomers out there) was the title to a song written by Burt Bacharach in the mid 1960s and made popular by Dionne Warwick, among others. It is also a legitimate question to ask about estate tax, estate tax planning, and estate planning.

The fact of the matter is that if a person is single and has an estate worth up to around $5,400,000 there is little reason to be concerned about Federal estate tax. And a married couple worth up to twice that amount need not be concerned about Federal estate tax. So for most persons subject to the Internal Revenue Code, Federal estate tax is not an issue. Of course, that could be different some day. We are all aware that Congress and Presidents have been known to change all kinds of tax laws on a frequent basis. But, estate planning should be a concern to almost all of us. Consequently, that is likely to cause you to say to me, “What’s that all about Alfie?” I’m Chuck, but you can call me Alfie.

I distinguish estate tax planning from estate planning in this way. Estate tax planning has to do with minimizing, optimizing, or even eliminating estate taxes. Estate planning has to do with being as certain as you can be that you control the use of your money and other assets after your death. For example, if you want to set aside money for your grandchildren’s college education, how can you prevent the money from being misused by your grandchild, child (the grandchildren’s parent) or your son-in-law or daughter-in-law who out lives your child? Also, some persons like their heirs to be above certain ages (in hopes of assuring more financial wisdom) before they have full access to the assets. Sometimes this desire to control the assets might even, to your way of thinking, justify there being some estate or other death taxes. You will note that I have used the word death taxes instead of estate taxes.

Allow me to deviate a bit at this point about death taxes. An even broader term is transfer taxes. Transfer taxes would include gift taxes in addition to death taxes. Death taxes include estate taxes and inheritance taxes. Estate taxes are taxes on the right of the estate to transfer its property. Inheritance taxes are taxes on the right of the beneficiaries to receive the assets. Many estate taxes, like the Federal estate tax, have one set of graduated rates. Many inheritance taxes, like those of Pennsylvania, have different rates, depending on the legal relationship of the beneficiary to the deceased. In Pennsylvania the rates go from 0% to 15%. Yes, there is a tax computed at 0%! That is the tax on assets left to your surviving spouse. The Pennsylvania rates applying to other relatives can vary from 4.5% to 12%. Other beneficiaries might have to pay the 15%.

As much as most of us do not like taxes, the Pennsylvania inheritance taxes often are of minimal concern if the deceased can control the use of the money after their death. There are quite a few tools to use in controlling the assets after your death. Among the more common tools are:

  1. Make gifts while you are alive and can monitor the use.
  2. Put assets in some version of “joint name”.
  3. Use of trusts.

Estate planning, like estate tax and inheritance tax planning, is done best with a team of advisors. Your team should include your accountant, your attorney, your financial planner, and your insurance advisor. I am a CPA. I am also a CVA and an ABV, both credentials in valuing businesses if there is one in your estate. And last, but not least, I am an Accredited Estate Planner” (AEP). But you do need that team of experienced advisors.

Hopefully you, too, now know the answer to the question, “What’s it all about Alfie?” in regard to estate planning versus estate tax and inheritance tax planning.