There are those who think the wildly popular TV series Downton Abbey is simply a period puff piece. But I beg to differ. The series has a lot to say about inter-generational wealth transfer.
Consider the premiere episode of Season IV last Sunday, a virtual primer on estate planning, as the Crawley family frets (in scene after scene) about “death taxes.” “This is exactly why people should do estate planning,” says Kristi Mathisen, LNWM’s Managing Director of Tax and Financial Planning.
What would happen if the Crawleys were residents of Washington State? First, a quick recap of the situation (SPOILER ALERT): Matthew Crawley, the young estate owner, dies in a car crash on the way back from the hospital, where his wife Mary has given birth to baby son George. No will is found. So most of the property passes on to baby George and all sorts of grief ensues until – miraculously – a will IS found and Mary takes control of the estate.
If Matthew Crawley were a WA State resident who died without a will: Most likely, half his estate would go to wife Mary and half to baby George, to be administered by a guardian until George turns 18. Estate tax owed: on the half of the estate that baby George inherited, WA estate tax is levied on amounts just over $2 million; the federal estate tax then kicks in on amounts over $5.34 million.
Avoiding the Crawleys’ Situation
For effective estate planning, says Kristi, two of the most important considerations are:
(1) When to claim the estate-tax exemption. Without a will, there’s not much that can be done. But with a will and an estate plan, the entire estate could go to wife Mary Crawley, who can avoid paying any estate tax upon Matthew’s death, as long as she’s a U.S. citizen.
However, avoiding estate taxes after the death of a spouse in this way isn’t always the best option, points out Kristi. Depending on the size of the estate, the types of assets and other considerations, it might be more beneficial to set up trusts for part of Matthew’s estate.
(2) Controlling who gets what when, including the government. Mary, for instance, may fear that her son George will be like her father – not a good businessman. So she might prefer that George inherit his half of the estate when he turns 40, not 18.
Through the use of trusts and strategic estate planning, families of wealth can control who gets what when, says Kristi, including the payment of estate taxes. “Personally,” she adds, “I’m not a Downton Abbey viewer [gasp], but I’m glad to hear estate planning is getting some major publicity.”