Article Contributed on: 11/28/2006 5:00:14 PM
The federal estate tax is scheduled to be repealed in 2010 for one year only.
The tax is reinstated in 2011 and will apply to every dollar over $1 million in asset valuation. Those dying in year 2011 will be subject to a 50 percent tax of each dollar over $1 million of assets they leave.
Those assets are typically the family home, real estate, life insurance benefits, bank accounts, stocks, bonds, mutual funds, investments and business assets.
Many people do not consider themselves "rich" enough to trigger federal estate tax, however add in life insurance benefits and even those of very modest means can easily leave an estate greater than $1 million. Add in a family owned small business that may have greater value than you think and the exposure to tax becomes very real.
One sure way a married couple can avoid or limit this tax is to engage in simple and reliable estate planning technics with the use of revocable living trusts. The trusts are relatively easy to set up and fund and the cost is very reasonable considering the heavy amount of tax to be avoided.
For example, using the $1 million limits set for 2011 (you may actually be around in 2011 so its best to plan on those rates now) a husband and wife with a $1.5 million estate all held in joint tenacy will pay no tax on the death of the first spouse.
Each spouse can leave 100 percent of all property to the surviving spouse without any tax whatsoever. The problem arises on the death of the surviving spouse. Assuming a $1 million exemption that leaves $500,000 exposed to the tax. At 50 percent, the tax would equal roughly $250,000. That tax must be paid within 11 months of date of death.
Now, with estate planning, each spouse establishes a trust and places property into that trust during their lifetime, Each trust would hold assets equal in value to $750,000.
On the death of the firstspouse, no tax is owed as their estate is under the $1 million exemption. The martial exemption is not applied as the individual exemption covers all assets controlled by the decedents trust.
The surviving second spouse gets the actual benefit of the decedent's trust property and income but those assets are not considered an asset of the second spouse when the secondspouse dies.
Hence, the $750,000 in the second spouse's trust passes without federal estate tax as well (again assuming the $1 million exemption amount applies at date of death of the second spouse) and all funds of both trusts combine again to pass to the couple's children or heirs without tax.
As a result $0.00 federal estate tax is owed and the couple just saved $250,000 as the result ofestate planning.
The legals fees and expenses it cost the coupleto accomplish this tax saving amount to a little more than1 percent of the tax savings. Most folks would consider this a very good investment.
Call us today to review your situation as future tax laws will likely be biased towards keeping the tax at the higher rates and lower exemption levels. Don't expect the current party in power to lower your taxes, especially if they think you're already rich and don't deserve a tax break anyway.
They won't protect you so it's up to you to protect yourself and the best way possible is to do estate planning now while you are able.
Delay is not your friend so call today.
Jerold R. Gilbert, Esq.
Jerold R. Gilbert Law Offices, P.C.
720-748-6600
jgilbert@jeroldgilbert.com