What You Need To Know About Estate TaxShare
Estate tax, in simple terms is the amount taken from your combined possessions when they are transferred to your heirs. While current legislation has made the impact of estate tax less punishing than it has been historically, that doesn't mean you can ignore it. The combined value of your retirement portfolio, trusts, and other assets can quickly add up to the point where estate tax becomes a concern.
Fortunately, it's fairly simple to know what type of impact estate tax might have on your family and loved ones. A firm understanding of the legislation's basics can help you ask the right questions when you sit down with your estate planning lawyer.
Estate Tax Exemption
It's become quite popular in political circles to raise the exemption on the estate tax. This is good news for people in the second half of their life, since your estates won't be taxed until the net worth reaches 5.43 million dollars. In the past, this figure was much lower.
However, with current retirement investment targets, that figure isn't as far off as it may seem. An early death with a large retirement portfolio can quickly raise an estate's assets into the taxable realm. For married couples with multiple retirement accounts and other properties, many upper middle-class families could come close to that number at certain points in their lifetime.
Gifts and Other Family Structures
One way to help avoid this issue is to utilize the yearly tax-free gift exemption to whittle down your net worth. This number, currently at $14,000 yearly, is the amount you can give to people in your family without paying any taxes. By using this tactic strategically, your estate's tax liability can be mitigated.
Also, it's important to understand how the husband/wife dynamic plays into calculating estate tax. If you're married, both you and your spouse can each hold 5.43 million dollars in assets before the estate tax kicks in. By structuring your assets in the proper holder's name, this allows you to have a much higher ceiling on your net worth.
Certain investments, such as a child's 529 college savings plan, is exempt from the yearly gift tax. Funding these accounts for grandchildren is a great way to move assets into a tax-sheltered situation. Trusts work in much the same way--though you'll need expert advice on avoiding lifetime gift taxes and other legal pitfalls.
Also, it's possible to pay for a relative's medical or dental expenses without incurring the gift tax. However, you'll need to pay the service providers directly, in advance. For people who have a relative that needs consistent long-term care, this is a viable strategy.
A number of options are available for helping you deal with estate tax. Talking with an accountant today is the best way to ensure that you're taking advantage of everything you need in order to maximize the value of your estate. If you run into issues with your taxes, contact a professional estate planning lawyer to resolve any complications. Click here for more info.