Steve Jobs' Estate Not Likely To Owe Tax

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We’ll never know for sure what specific planning tools Jobs used. That’s because, being a very private person, he is likely to have passed as many of his assets as possible through trusts, rather than using a will. Unlike a will, a trust does not have to be submitted to probate–the process through which a court determines that a will is legally valid and approves the distribution of assets covered by that will. Therefore the terms of the trust remain completely private.

However, a trust avoids probate only for assets put into the trust. Reuters reported that in 2009 Jobs and his wife put at least three pieces of real estate into trusts.

Other assets will not go through probate no matter what a will or trust says. These include retirement assets, life insurance and savings bonds, as well as jointly titled bank accounts, brokerage accounts and real estate.

Lawyers recommend a will that can cover everything else, whether or not you list it. Of course, this will must be probated, but in Jobs’ case it is likely to be very simple and reveal little, if anything, about his assets.

To avoid estate tax, Jobs could pick and choose from a variety of tools. Some are very simple and are commonly used by people of much more modest means. Others are hugely sophisticated and involve high transaction fees for lawyers and financial advisors. Here are the tax saving techniques Jobs is likely to have found most appealing.

Transfers to his wife. Assets inherited from a spouse are not taxed as long as the inheritor is a U.S. citizen. This is the unlimited marital deduction. So Jobs could have avoided tax by leaving everything to his wife Laurene directly (outright) or having them go into a special trust, called a marital trust.

The marital deduction doesn’t avoid estate tax – it just postpones it. If assets inherited from Jobs remain when Laurene dies (say she didn’t spend all the money), those assets count as part of her own estate and could be taxed then. Given the amount involved, that’s a strong possibility.

Gifts to charity. Jobs has long been criticized for his lack of charitable giving. In previous posts, I raised the possibility that Jobs may have chosen to give anonymously, either during his life or through his estate plan, and described a variety of ways he could have done that.

Apart from altruism, for someone like Jobs, both lifetime gifts and charitable bequests would produce estate planning benefits. There’s an income tax deduction associated with gifts during life–adjusted gross income can be reduced up to 50% for cash gifts to public charities and by up to 30% for donations of appreciated assets, such as stock held longer than 12 months. Remember your favorite cause or alma mater money in your estate plan and you will be leaving less for Uncle Sam.

Use of the tax-free amount. Apart from assets left to a spouse, which are tax-free, for the next two years we can each transfer up to $5 million tax-free during life or at death to anyone else. That figure is called the basic exclusion amount. Starting in 2011, widows and widowers can add any unused exclusion of the spouse who died most recently to their own. This dramatic change enables them together to transfer up to $10 million free of the estate tax, which is currently 35%. Tax geeks call this portability.


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