The federal estate tax can be a factor for you if you are transferring a significant amount of property. Asset transfers between spouses are not subject to the estate tax, but transfers to others are potentially taxable.
You should prepare a statement of net worth when you are planning your estate so that you can compare the value of your assets to the amount of the federal estate tax exclusion. The exclusion is the amount that you can transfer before the estate tax would be applied. In 2015, the exclusion is $5.43 million. There are annual inflation adjustments, so the figure will probably be slightly higher next year.
We should point out the fact that there are some states in the union that impose state-level estate taxes. We practice in North Dakota, and there is no estate tax in our state.
However, if you own valuable property in a state that has a state-level estate tax, the tax in that state could be a factor for you. The state-level exclusions are typically lower than the federal exclusion, so you could be exposed to a state-level estate tax even if you are exempt on the federal level.
Everything that is in your direct personal possession would be counted, and this includes your real property. There are those who are “land rich” even if they are not in possession of a great deal of liquidity, and this is something to take into consideration.
Wealth Preservation Trusts
You may naturally assume that you would be removing assets from your taxable estate if you convey them into any type of trust. This is not entirely true. It would depend upon the type of trust.
Revocable living trusts are very popular, largely because of the fact that they facilitate asset transfers outside of the process of probate. If you use a will as your primary vehicle of asset transfer, it would be admitted to probate, and the heirs could not receive their inheritances while the estate was being probated.
Since you can revoke this type of trust, you are retaining incidents of ownership, so assets in a revocable living trust would still be part of your estate for tax purposes.
The trusts that provide estate tax efficiency are irrevocable trusts. Generation-skipping trusts, grantor retained annuity trusts, qualified personal residence trusts, and charitable lead trusts are some of the trusts that can be used for tax efficiency purposes.
Schedule a Free Consultation
If you are concerned about how death taxes can impact your legacy, our firm can help. We can answer all of your questions, become apprised of your situation, and make the appropriate recommendations.
To set up a free consultation, send us a message through this page: Grand Forks ND Estate Planning Attorneys.