There’s been talk on Capital Hill again about estate taxes. Once again, there appears to be no movement on the horizon. It looks as though we are going to have to wait until the election of 2008 before Congress does anything about the estate tax issue.
In short, the government allows you to pass a certain amount of money to your heirs, tax free, upon your death. This is known as the “exemption” amount. Each year, that number is subject to change. This year, you can pass up to $2 million to your heirs without taxes, but that number is scheduled to return to $1 million in 2011 (which is only 3 years away). Your estate basically includes everything you own, including retirement accounts and life insurance.
Let’s say that Mary and Joe Sample have a home worth around $900,000, some savings and investments of around $300,000, and Joe has a life insurance policy of $500,000. Upon Joe’s death, his life insurance pays out to his wife and she takes control of all remaining assets. That means that Mary now has $1.7 million (the sum of all these assets) in her name. So far, so good.
When Mary passes away in 2011 (or beyond as per the current estate tax schedule), any amount over $1 million (the amount she may pass tax free) will be taxed at about 45 percent which amounts to approximately $322,000. This will certainly not be welcome news to Mary’s heirs who must now come up with that money one way or another. Although Mary and Joe have passed away per the hypothetical, they probably didn’t want the government to take that much money from their heirs. Note there are some planning techniques Joe and Mary can use to minimize or eliminate this result.
While most readers may not consider themselves terribly wealthy, one is often surprised to see how much they are really worth when they consider all their assets including life insurance. Talk to an estate-planning attorney today to see how you might reduce or eliminate potential estate taxes. Listen to my audio presentation about Estate Planning online at www.ValenciaLawyer.com .
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