Effective as of January 1, 2009, the federal estate tax has a new exemption amount.
Currently, estates are exempt if they are below $3.5 million Dollars. That’s the good news. The bad news is that many people may still be subject to the tax even though they think that they and their families are free of that very large burden.
First, the estate subject to that tax exemption includes assets such as the death benefit of most life insurance policies, retirement accounts, joint accounts, and many trusts and other assets as well as assets that pass outside of an estate by beneficiary designation. In other words, non probate or life insurance does not mean tax exempt. Also, if a married couple has assets and life insurance that exceed that number they may still need significant planning to eliminate the tax. The current top rate of the tax is 42% which is scheduled to return to 55%.
Also, the tax is currently scheduled to return to a $1 million dollar exemption in 2011. So individuals or spouses with assets that exceed $1 million dollars should still consider estate tax planning.
Congress is currently considering a change to the tax and may or may not make the $3.5 million dollar exemption “permanent.” See my earlier article on Obama and the estate tax. And, that would be great for clients. In that way, you only need federal estate tax planning when your assets exceed that amount.
However, if the tax no longer applies to you, then you can and should focus your planning and spend planning dollars on protecting your spouse in the event or remarriage and divorce, protecting your children and grandchildren from divorce and lawsuits, and in minimizing state death taxes. Our enhanced Estate Planning(TM) and Family and Friends Plans(TM) focus on these issues and how to avoid family disputes, how to pass on the personal assets and how to make sure that your family history, values and wisdom are also preserved.
These planning approaches were often made more expensive and complicated when the federal estate tax applies. So, elimination of the tax for you may open some new planning options without breaking the bank. And, gifting stock, real estate and other assets in a bad economy with low interest rates may offer real planning opportunities. See my article on effective planning in tough economic times.
For now, make sure that your plan really works and is coordinated with the way you hold your assets, and make sure that you have the right tax planning, the right executors and trustees. And, if for fun you want to see if the Federal Estate Tax applies to you, be sure to check out this little tool from SmartMoney. Just click the link.
But remember that an estate planning check up from your professional advisers, focused on you and your family is the best and that no general calculator will replace that personalized attention.
David M. Frees III, Esq.
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