Estate (Taxes Imposed upon Decedent’s Estate)
Tax Rates Are Based on Valuation of Estate
You should periodically review the value of your estate with a Certified Public Account (CPA).
The Internal Revenue Service values your estate by adding together the value of all of your assets (i.e., residence and other real estate, cash accounts, investment accounts, business interests, personal property, such as jewelry, art, vehicles and boats, retirement accounts, life insurance) and subtracting the value of your liabilities (i.e., mortgages and other debt).
The maximum tax rate for 2011 and 2012 is 35%.
Exclusions from Tax
Each person who dies receives an individual exclusion from estate tax. The exclusion amount for 2012 is $5.12 million. Each dollar that exceeds this exclusion is taxed at a rate of 35%.
How Trusts Preserve the Estate Tax Exemption
- Unless Congress takes action, the tax exemption will return to $1.0 million per person and the maximum estate tax rate will be 55% in 2013. As you are likely aware, the federal tax exemption is expected to be revised before December 31, 2013, including the possibility of a retroactive change affecting the tax exemption for 2013.
- When the first spouse passes and leaves their entire estate to the surviving spouse, the federal government does not tax the estate due to the “unlimited marital deduction.” However, if the first spouses exemption is not properly preserved, when the second spouse passes the entire estate is subject to the estate tax and the surviving spouse is limited to their individual exclusion amount, currently $5.12 million.
- By creating a living trust with specific provisions to protect against the estate tax, married couples can preserve the estate tax exemption of the first-to-die and can go so far as to effectively double the estate tax exemption. Therefore, with a living trust, married couples can currently increase their federal estate tax exemption to $10.24 million.
- Other Benefits of Trustsa) Immediate transfer of administration of assets to Successor Trustee
b) Broad powers to act as authorized by the trust
c) Ability to put restrictions on gifts (i.e., age of beneficiary before outright distribution is made, amount of gifts to beneficiaries, etc.)