The Steve McNair Estate has been relatively quiet lately, after a fast start with plenty of fireworks. You can read the Probate Lawyer Blog's prior articles about it here. But despite the apparent calm, there are still lessons to be learned.
The lawyers for McNair's widow, Mechelle McNair, recently had to file a petition with the Tennessee probate court asking for funds to be released from a frozen trust account to pay taxes. Ho hum, right? Not so fast.
How much did she have to withdraw? A cool $3.72 million -- all for state and federal estate taxes that were due earlier this month. And that's just the estimated taxes that she has to pay now. When the final determination of how much she, as the surviving spouse, will receive is calculated, that price tag may increase. Her attorneys anticipate filing an amended tax return which may include even more money due to the IRS.
Why should this matter to you? If Steve McNair had done the proper estate planning, he could have avoided all of these estate taxes for his widow. Through a properly-drafted revocable living trust, his widow would have have avoided the tax bill. That's right, she would have owed nothing! (But the kids may still have owed a tax bill after she died in the future, depending on the tax laws in place then).
In fact, if McNair even had a basic will, while the taxes still would have been due, his widow could have saved money in legal fees. Without a will, she has to pay lawyers to take extra trips to court that result in higher legal fees ... not to mention all the headaches that come with dividing an estate based on intestate law between the widow, her two children, and two other children from other relationships.
But wait, you may be thinking, this doesn't matter to me because I'm not a millionaire. And didn't Congress repeal the estate tax law this year? Don't think like that.
While, for 2010 only, the estate tax had been repealed, that only applies to people who pass away this year. Don't plan on dying this year? As of January 1, 2011, the estate tax comes roaring back, at a one million dollar level.
Everyone had expected Congress to "fix" the estate tax and set it at a higher level -- possibly even retroactively to apply to those who already passed in 2010.
But, with the new health care laws, the government will be looking for ways to raise money. Is keeping a low estate tax level one of their answers? It could be.
With a one-million dollar exemption, many Americans will be affected. Life insurance, home values, and all other assets count towards the exemption. So, yes, you would have to worry about it even you aren't a millionaire.
Learn from the mistakes of Steve McNair and go see a good estate planning attorney now. Don't wait until tragedy strikes and leave your family unprepared.
Posted by: Andrew W. Mayoras and Danielle B. Mayoras, co-authors of Trial and Heirs: Famous Fortune Fights! and co-founders of The Center for Probate Litigation and The Center for Elder Law in metro-Detroit, Michigan, which concentrate in probate litigation, estate planning, and elder law. Andrew and Danielle are husband and wife attorneys, professional speakers and consultants across the country.Follow us on Google+