Taxes are something you have to pay all of your life, and if you do not plan ahead, they will be something your estates will be paying even after you are gone. So making sure that you get quality estate planning tax advice when you are arranging your final affairs is one way to ensure that your heirs, and not the IRS, receive the bulk of your estate.
One of the most common mistakes people make when it comes to their estate is that they simply fail to prepare a plan. Many people, especially the young and healthy, never even set up a Living Will. Living Wills are important to have at any age because they serve as a directive in the event that you become incapacitated. Even though far fewer young people plan their estates, more than twice as many 20-somethings die in car accidents than 60-somethings. Therefore, it is crucial that you plan your estate regardless of your age, health, or income level.
The passage of the 2001 EGTRRA provided valuable estate tax breaks. Because of the peculiar way in which the law was written, the Economic Growth and Tax Relief Reconciliation Act also gave some people a false sense of security by leading them to believe that the federal estate tax was repealed in 2001. The reality is that the current tax law repeals the federal estate tax for only one year, 2010. Depending on the year of death, the estate tax credit amount, the corresponding exclusion amount (which is the amount that each person can pass to beneficiaries free from federal estate taxes) and the top tax rate vary significantly. For instance, in 2009, a person can pass up to $3.5 million to his or her beneficiaries’ federal estate tax free. For 2010 the federal estate tax was repealed. In 2011, the estate tax is scheduled to return with a significantly lower tax free amount, $1 million, and a significantly higher top tax rate at 55%. This quirk in the law is known as the “Sunset Provision” and has caused a lot of confusion among estate planners and their clients.
Getting estate planning tax advice on a continuing basis is important, because you may have to adjust your estate planning strategies as your financial situation and/or the estate tax laws change. Consulting with an estate planning tax expert as your circumstances change will ensure that your heirs are not left with any unpleasant surprises and that your final wishes will be honored as you desired.
A significant portion of your assets might be vulnerable to estate taxes after you die. However, there are ways to leave behind an estate without losing most of it to taxes. It is important that you consult with a qualified attorney to discuss the most strategic methods for establishing your unique plan. A well-crafted plan will ensure that your beneficiaries get the most benefit from your years of hard work.
Instead of repeal, reform of the federal estate tax is a possibility. Several key lawmakers were up for re-election in 2008 and they would have liked to see the estate tax issue resolved prior to Election Day. Such did not happen. Almost everyone agrees that something needs to be done to make the federal estate tax more predictable and user friendly. It seems that the current political climate could be the right time for reform. One possible reform is to freeze the 2009 rates and exemption amounts for 2009 and beyond with an exemption amount of $3.5 million per estate and a top tax rate of 45%. Only time will tell what happens, but one thing is certain, doing nothing and waiting for Washington to fix things is probably not in your or your family’s best interests.
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