When considering the role of taxes in estate planning, a consideration of federal estate taxes should be taken into account.
Federal Estate TaxesA basic understanding of federal estate taxes will help underscore the importance of good estate planning. Federal estate taxes are presently assessed at the avery high rate on the amount over $5,000,000.00 so you can see the potential impact if an estate is not planned well! In planning one's estate, careful consideration needs to be made of all exemptions and deductions available to avoid or minimize the tax. In particular, in 2011-2012, there is an exemption known as the "Unified Credit" which provides for no estate tax on the first $5,000,000 of the person's gross taxable estate. After 2012, it is undetermined what will occur with the Unified Credit amount.
Unified Credit and Marital Deduction In order to understand this further, there are several additional matters to take into consideration. First, for a married couple, each spouse can utilize the Unified Credit exemption. As such, if properly planned, in 2011-2012 a married couple can leave up to $10,000,000 free of estate taxes. In addition, a married couple has an "unlimited marital deduction", meaning that at the death of the first spouse, there is no estate tax if the estate is devised to the surviving spouse. So with a properly designed estate plan, in 2011-2012 a married couple can leave an unlimited amount to the surviving spouse and up to $10,000,000 upon the death of both spouses.
Gross Taxable Estate
One frequently misunderstood aspect of estate taxes relates to what constitutes the "gross taxable estate" upon which it is determined if there will be any taxes imposed. In simplest terms, essentially
all assets are considered in calculating the gross taxable estate. This includes assets that pass directly to beneficiaries such as life insurance, IRA's, 401K's, etc. Sometimes people do not think their estate exceeds the $2,000,000 Unified Credit amount until they realize that their life insurance death benefits are included in the total calculation of the gross taxable estate. For example, if a married couple owns a home worth $400,000, has a 401K valued at $1,200,000 and life insurance with a death benefit of $1,000,000, they have a gross taxable estate of $2,600,000.
Because estate tax planning is complex and is constantly in "flux" due to changing tax laws, you should seek competant advice from an experienced estate planning attorney.
For additional information or to discuss Estate Taxes, visit:
www.linslawgroup.com