It's no secret that Bill Gates is one of the wealthiest people on the planet. You would think that the IRS will mop up when he dies, collecting billions in estate tax to be redistributed in whatever way our government distributes it - that's another story.
While Mr. Gates has not yet contacted me to customize his estate legal documents, there is little doubt that he will take advantage of two "often little known" tax rules to minimize or completely avoid federal estate tax. While I'm sure Bill has several trusts to avoid probate and make things simple, here are the two tax rules that Bill will take advantage of:
- The Unlimited Marital Deduction. If Bill dies before his wife, Melinda, he will leave his estate in a way so that $0 estate tax will be paid when Bill dies. You can leave an unlimited amount of assets to your surviving spouse when you die, and no estate tax will be due (the idea is that the tax is due after the surviving spouse dies);
- The Estate Tax Charitable Deduction. After both Bill and Melinda die, they will leave the bulk of their estate to the Bill & Melinda Gates Foundation. Anything you leave at your death to a charity escapes the federal estate tax.
Voila! No estate tax. The richest man in the world will take advantage of two often mis-understood tax principles to avoid a tax that is specifically designed to tax the rich.
When Bill calls, I'm sure we'll have a discussion about this. Moral of this story? Make sure you take the necessary actions to protect your estate from the government - be like Bill.