How can you reduce estate taxes?
Do you want to leave more money to your beneficiaries and less
money to the federal and state government in the form of estate
taxes? Many of us would like to reduce estate taxes at our
death, and enhance the wealth transfer we leave behind.
When someone passes away, federal taxes and often state taxes
will be assessed. The gross estate, the value of the property
owned by the decedent on the decedent’s date of death, is the
starting point in calculation of estate tax. Debts of the
decedent, administrative expenses, charitable deductions, and a
marital deduction will be subtracted from the gross estate to
arrive at the adjusted gross estate. The tax rate will be
applied to the adjusted gross estate, and the estate tax credit
will be subtracted. The result of this calculation is the
estate tax due.
Under current law, every taxpayer is allowed to transfer a
certain amount of assets free of federal gift and estate taxes.
The current exemption amount is $1.5 million. This exemption
will climb to $3.5 million in 2009. The legislation allowing
these exemptions will be repealed in 2010 and it is expected
that the exemption amount in 2011 (absent any new legislation)
will be $1 million.
What does this mean to you? It means that if you die and your
adjusted gross estate is more than the estate tax credit, that
you will have an estate tax problem. In 2004 and 2005, a
decedent having an adjusted estate valued at $1.5 million or
more will owe estate tax. The estate tax rate ranges from 45%
to 55%. This very high tax rate makes many people who have
taxable estates want to take action to reduce or eliminate their
potential estate tax liability. Can this be done?
Yes, you can reduce or eliminate your estate tax problem in a
number of ways. Credit shelter trusts, irrevocable trusts,
charitable trusts, and gifting are all ways to solve an estate
tax problem. It is highly recommended that you seek
professional legal advice before trying to reduce your estate on
your own. Gifting assets to others can have adverse effects on
your exemption amount, and may result in increased estate tax,
if not done properly.
Contact us for a free consultation and learn how you can leave
more of your assets to those you love, and not to the government
in the form of estate tax.
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