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Estate TaxesFederal estate taxes apply only to estates larger than $650,000 for 1999($675,000 in 2000, and up to $1 million by 2006) that are not being left to a spouse. Estate taxes are significant and in the lack of proper planning can significantly reduce the amount left for your heirs. The estate taxes would apply only to the amount in excess of the allowed exemption. For example in the year 2000, for a $676,000 estate, the estate would pay 37% of the amount over the exempt amount, or $370 (Given an exemption of $675,000). Some of the ways used to reduce estate taxes include: 1- Write or update your Will: Without a will, you have left your estate planning to your state government under its laws of "INTESTACY", under which a local court will have to appoint an administrator (possibly a paid stranger) to manage your estate, or naming your surviving spouse the administrator (spouse may have to post a financial bond). In the lack of will your estate could, very likely take more time to settle, unwittingly pay more federal and state taxes than necessary, and your surviving spouse may receive less than half of your separate property, depending upon the state law and the number of other surviving family members, including your children, parents, and siblings. 2- Create a living trust: Like a Will, a revocable living trust can provide for the orderly disposition of the property it controls. However, unlike a Will, which will automatically control all assets personally owned by the testator, a trust will control only those assets which have been placed into the trust by the party creating it (the creator of a trust is known as the settlor, trustor or grantor of the trust). See more information about living trusts 3- Create a living will: Living wills do not affect your property and are generally invoked only in "life or death" situations. Living wills and and a related document known as Durable Power of Attorney for Health Care, which is a written legal document that gives another person the authority to act on your behalf with regard to your health care decisions, are an important part of planning for the future. 4- Give away part of your estate: each taxpayer can give up to $10,000 a year to as many people as they want, tax free. For married couple the amount given is $20,000 (each spouse can give $10,000) to each person. 5- Give away your life insurance policy: Taxpayer can keep his/her life insurance policy out of the estate by giving such policy to a child, spouse, or by placing it in an irrevocable trust. If the policy id given away the taxpayer CANNOT continue to pay the premiums, the new owner has to pay the premiums. 6- Getting married may have some advantages: No estate tax is levied on property given or bequeathed to a spouse. Of course, whatever is left (over $650,000) can be taxed in your spouse's estate when he or she dies. These are just some examples that may or may not be appropriate for properly plan your estate. Please call us or seek professional advice to further explore this subject. |
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