Estate Taxes

           Unless someone is a multi-millionaire, they do not have to worry about paying estate taxes.  Currently, there is a $5 million per person estate tax exemption.  Also, there is a gift tax exemption of $5 million per person, or $10 million per couple.  That means that a couple can transfer $20 million, if they do it wisely.

          The tax rate on amounts above this has been reduced to 35% from 55%.  This allows people to pass a much larger amount of money to their heirs while paying a greatly reduced amount of taxes.

          There have been reports that it is possible, or even likely, that Congress will at some point lower the amount of money that is exempt in order to try and reduce the federal deficit.  Wealthy people have at least one more year to take advantage of the current limits.

          The gift tax exclusion had been $1 million for many years.  The raising of the limits will permit the wealthy to pass along and keep greater amounts of wealth.  In 2013, the gift and estate tax exemptions will return to $1 million, unless Congress acts.  It is very likely that they will do so, although there is a presidential election that will be held in the meantime and depending upon what happens politically the possibility of a lame duck congress with one last opportunity to do something with no political consequences creates a volatile and unpredictable situation.

          Currently, the estate tax is portable between spouses.  That means that if one spouse leaves an estate of less than $5 million then the other spouse can use the remainder.  However, in order to take advantage of the portability the initial spouse must have an estate tax return filed, even if it is not immediately necessary.

          There are many strategies that can be used to reduce the amount of estate taxes that an individual will have to pay.  One of these is setting up an AB trust, which is available to married people, or taking advantage of the ability to use an irrevocable life insurance trust that can be used to pay the estate tax.

          Also, individuals can set up family limited liability companies and/or partnerships to gift assets.  There are also options available for those individuals that wish to ensure that their money continues to serve humanity after they are gone.  These people can establish charitable remainder trusts or charitable lead trusts.

          Different methods have a variety of advantages and drawbacks.  It is important to take into consideration the likelihood of a will contest or litigation after death and what effect that will have upon assets that have been left behind.