Report Finds US Affluent More Concerned About Tax Than Accumulating Additional Wealth

by Mike Godfrey, Tax-news.com, Washington

07 May 2001

A recent survey of America's affluent, conducted for Philadelphia-based financial services provider Lincoln Financial Group (LFG) by Wirthlin Worldwide, found that nearly three out of four wealthy Americans think their assets are not sufficiently protected from excessive taxes. Protecting assets against taxes is the second most common goal among this group, more prevalent than concerns about accumulating additional wealth, according to the survey entitled "Financial Planning Among America's Wealthy."

When asked to assess the degree to which their assets were protected from taxes, 52 percent of respondents said their assets were only "moderately" protected, and 20 percent believe their assets were protected "very little." In fact, only 27 percent of the affluent — less than one-third — said they are confident that they have adequately protected their assets from taxes. The survey found 59 percent listed avoiding excessive taxes as a "very important" goal, second only to preserving wealth, which was cited by 70 percent. Accumulating additional wealth was third at 46 percent, and passing their wealth onto their children was cited as very important by 38 percent. Twenty-four percent listed preserving their company as a very important goal.

When it comes to lowering their tax bill, about 6 in 10 said 40l(k) and IRA plans were very important tools for reducing taxes, followed by 50 percent who cited creating a trust and 22 percent who listed making annual gifts to charities, according to the LFG study.

The survey was conducted among 400 Americans with investable assets of more than $250,000. In determining the asset threshold, the survey excluded company retirement plans, 401(k)s, 403(b)s, and the respondents' primary residence, but included IRA accounts. Part of the study compared the attitudes of Americans with three levels of investable assets: $250,000 to $500,000; $500,000 to $1 million; and more than $1 million. It also looked at different age groups — 35 to 44, 45 to 59, and 60 or older.

A number of studies in the US have shown there are about 7 million households in America with an overall net worth of $1 million or more, and that number is expected to grow significantly, despite the recent slowdown in the economy. Amy Leavitt of Lincoln Financial Advisors, a unit of LFG, commented: 'The wealthier people become, the more concerned they become about whether they are doing all they can to protect their assets. State and federal tax laws are constantly changing, leading people to continually look for new ways to protect their assets.'

Widespread concern over excessive taxation has led to more and more Americans becoming interested in creating trusts, indicating this tool is no longer the exclusive domain of the mega-rich. In fact, the study showed 56 percent of those surveyed have established a trust as part of their estate planning, and half feel creating a trust is a very important tool for protecting their assets from taxes.

David Megaw, a trust expert at LFG, said: 'For someone worth $3 million, the federal estate tax could be as high as $1 million.' He said a simple technique that can be used by a couple looking to reduce this burden is to take advantage of the unified credit, which is the term for the amount of assets ($675,000) currently exempt from the federal estate tax.

Megaw stated: 'If today, a husband places his $675,000 in a unified credit shelter trust and the rest of his estate is left to his wife, there would be no tax at his death because of the unlimited marital deduction. After his death, the surviving wife has lifetime access to the income from the trust. The value gained from the husband's transferring his federal unified credit exemption into a unified credit trust while he is still living is that his $675,000 would be exempt from estate taxes at the wife's death, rather than being part of her taxable estate, preserving the capital for the couple's children.' When the trust passed from the wife to the children, the amount the estate could save would be about $360,000 in federal estate taxes because of the amount protected in the unified credit shelter trust, Megaw added.

For more information about the growth of the affluent in America, please see the background report, "The New American Millionaires," at LFG's website, www.lfg.com

Recommended