Estate tax impacts lessened with proper planning

By Barbara Craig, Attorney at Law

estate tax planning san pedro attorneyUntil recently, estate tax planning was one of the top reasons that clients would seek the advice of an estate planning attorney. Previously, the federal estate tax (or death tax) exemption limit was $2 million, meaning that estates worth more than $2 million were subject to hefty estate taxes. While this might sound only like a rich person’s problem, I see many clients here in Southern California who could have easily exceeded this amount, due to the relatively high cost of real estate here.

Fortunately, for these clients and many others throughout the US, the federal estate tax exemption was permanently increased in 2013 to $5 million with annual adjustments allowed for inflation. The 2014 estate tax exemption rate is set at $5.34 million. This number is doubled for those who leave their estate to the surviving spouse.

Your federal taxable estate is determined by the gross value of your assets owned by you at the time of your death. Examples of assets are:

  • Money in checking and savings accounts
  • Real estate
  • Business owned at the time of death.
  • Financial investments and retirements accounts
  • Personal property, including cars, furniture, jewelry, collectibles.
  • Payouts from life insurance policies

Most Americans do not have an estate that will exceed $5.34 million when they die and therefore will not owe any estate tax. Unless you are married and can use the marital deduction to reduce your estate, those that do have estates which exceed $5.34 million should seek the advice of an experienced estate planning attorney to review and consider all the options available.

What is the estate tax rate?

Estate tax is assessed at a maximum rate of forty percent (40%) of the gross value of your estate which exceeds $5.34 million. So if you have an estate worth $6 million at the time of your death, your taxable estate is $660,000, and your estate could owe up to $264,000 to the IRS. This might not seem like a lot since it’s only 11% of the total gross value of your estate. But the impact is much greater for larger estates. For example, if you have an estate worth $16 million, your taxable estate would be $10.66 million and your estate would owe greater than $4 million in tax, or more than 25% of the estate’s gross value.

Estate tax reporting forms and tax payments are due to the IRS within nine months of death. Sometimes there are not enough funds available to pay the taxes because the assets are not liquid or they are heavily mortgaged. If you have a larger estate, estate tax planning will go a long way in helping your family manage your estate after you die.

Do you have questions about estate tax planning strategies to reduce or eliminate your estate tax liability? Contact Estate Planning Attorney Barbara Craig to schedule a free consultation. Serving clients in the South Bay area including Torrance, San Pedro, Lomita, Harbor City, Carson, Wilmington, Long Beach and other nearby communities.

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