Estate Planning – An Overview
May 15th, 2010 Filed under: ab trust,Executor Fees,sample wills,Trusts attorney — Estate Planning Author
Estate taxes are better known as the death tax, because it is the tax levied on the total value of the assets (estate) of a deceased person before the estate is transferred to the beneficiaries or next of kin. So steep is this tax, that avoiding or reducing it is incorporated into financial planning. Estate planning is the sphere of financial planning that addresses estate creation, preservation and distribution.
Estate taxes are normally dealt with in the preservation and distribution of one’s estate. Based on current tax laws and individual circumstances, some estates have little or no estate taxes levied against them. This is the result of a number of factors such as:
i) The value of the deceased person’s estate. There exists an “exemption equivalent amount” that functions as an estate tax-deductible.
ii) Estate-tax reduction strategies: Life insurance, for example, has a cost. However, an in-force life insurance plan creates an estate immediately. In most cases, proceeds from life insurance plans are tax-exempt. Life insurance is certainly a critical tool in estate planning. It could create, preserve and distribute part of your estate.
iii) Current tax laws: Estate law, like any other law, is subject to change. The effect of these changes would influence estate tax deductibles, exemptions or other provisions.
Under several tax laws, the value of an estate that is transferred directly to the spouse of the deceased is tax-exempt. The “unlimited marital deduction” clause is one estate tax-exemption. However, this clause does not protect the estate value of that estate if it is subsequently passed on to other beneficiaries that do not include a spouse. In other words, if the spouse remains unmarried and passes on the estate to the children, the full of the estate would then be exposed to taxation.
The estate tax can truly be exorbitant, whether measured relatively or absolutely. In some cases, the chunk of the pie would be as low as 25% or as much as 40% of the value of your estate. Life insurance plans and other forms of estate planning strategies would not affect the estate tax structure, but reduce exposure to the tax.
Exemptions, deductibles and life insurance are just some ways that help preserve the value of the estate of a deceased person. Another method is to reduce the value of your estate by donating to charity or giving gifts to others (up to a certain amount) that are tax exempt. Incorporating tax-exempt expenses- like medical bills- also reduce exposure. However, these methods are basic in that do not assist those who want to preserve their estate without giving away chucks of it before the fact.
Trust funds are also approved methods of ameliorating the effect of the tax. These include life insurance trusts and charity trusts. To understand how trusts can help you and which trusts are available to you, you should contact an estate tax attorney or a certified financial planner.
Acquiring tax help can go a long way towards reducing the financial pain or headache your loved ones will feel upon your death. It may not be the most important aspect of financial planning in the context of most individuals, but for those with high-value estates or young families, estate planning would be absolutely essential in combating the “death tax”.
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