One good reason to retain the services of an experienced estate planning attorney is to provide you with guidance as you address the realities of the federal estate tax. At the present time, the estate tax exclusion stands at $5 million and the rate of the tax is 35%. This means that the portion of your assets that exceeds $5 million in value is subject to being shaved down by 35% as it is being passed on to your loved ones.
The above does not sound like a very enticing scenario, but unfortunately an even worse one lies in wait. Unless lawmakers in Washington pass some type of legislation that alters the existing schedule for the estate tax, the exclusion is going down to $1 million in the beginning of 2013. What’s more, the rate of the tax is going to skyrocket to a truly draconian 55%.
There are a number of ways that your estate planning attorney can help you gain estate tax efficiency if your legacy is indeed subject to the federal estate tax. The best way to proceed will vary on a case-by-case basis depending on the form that your assets are in and exactly what it is that you would like to accomplish with your legacy. However, one very simple and direct way to reduce the value of your estate for tax purposes would be to give tax-free gifts while you’re still alive.
There is a gift tax in place that carries the same rate as the estate tax, but there are exemptions. Each individual is allowed to pay the school tuition of any number of students as a gift free of the gift tax. Given the high cost of higher education these days, gifts such as these could go a long way toward reducing the taxable value of your estate. You can also pay the medical expenses of others as a gift without incurring any gift tax liability, and this includes providing individuals with health care insurance.
Gift giving is a useful estate planning tool, and it is something to keep in mind as you are making long-term plans for the future.