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Leona Helmsley's Estate Goes ... Not to the Dogs: Estate Planning and Taxes, What to Consider

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By Javier Lavagnino, Esq. on April 23, 2009 12:25 PM

The estate of late billionaire hotelier Leona Helmsley has, at last, begun to be distributed. The New York Times has covered the ongoing dispute over how money in her charitable trust would be spent. According to a "mission statement" created by Helmsley years ago, the money was supposed to be used for the benefit of dogs. In the end however, as had been argued for by her trustees, only a small part of the amount doled out yesterday went to the care of dogs (a paltry $1 million out of the $136 million distributed), while the remainder went to medical centers.

People might wonder what would prompt Helmsley to use a trust in the first place, if as argued by the President of the Humane Society, it could possibly result in her "wishes ... clearly being subverted"? For Helmsley, a big part of the answer may have been as simple as "taxes".

When doing their estate planning, most people do not have to worry about the federal estate tax. Currently, only those estates worth more than $2 million are taxed. But in the event an estate exceeds that value, it can be taxed 45% of everything over the exempt amount, and includes the value of all property in which the decedent had an interest at the time of his or her death. With an estate the size of Helmsley's, valued at a whopping $5 billion, any effort to lessen taxes' bite would certainly appear to be well-worth it. People going through the process of planning should also consider whether there is a state estate or inheritance tax, which could apply even if their estate is not big enough to owe federal estate tax.

It is important to note that there are exemptions to the estate tax, including the personal exemption which allows a certain amount (or all) of a deceased person's estate to transfer free of the estate tax, and the marital exception, which allows a deceased person's estate can pass tax free to a surviving spouse. Individuals can also consider lowering estate taxes by giving property away before death in a tax free gift, creating a bypass trust, or creating a charitable trust (a la Helmsley). However, just be sure that the documents prepared clearly express your desires, and are properly incorporated into the relevant documents, so that your estate doesn't or, does, end up going to the dogs.

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