Estate Taxes: Can I avoid Paying them?
In the simplest of terms, the "estate tax" is a tax on the amount of wealth you possess upon your death. While many of us spend countless hours each year working with tax advisors to reduce our annual income taxes, few of us pay any attention whatsoever to our potential estate tax exposure. This notion is was complicated by the fact that in 2010, the federal estate tax was temporarily repealed, but returned in 2011 with an exempt amount of $5 million per person, with a maximum taxable rate of 35%
 Starting in 2011, and unless Congress acts to change the current laws, once these threshold levels are exhausted, estate tax liability will be imposed - unless the individual has engaged in proper estate tax planning.
Many people labor under the misconception that their estate is not "big enough" to consider estate tax planning. Most often, these people have forgotten just how much wealth will transfer at death. Consider the following person:
- Personal Residence: $300,000
- Lake Cabin: $200,000
- Retirement Accounts: $250,000
- Stocks/Mutual Funds: $125,000
- Annuity: $100,000
- Bank Accounts: $50,000
- Life Insurance: $600,000
- Personal Property: $100,000
- Total: $1,725,000
Starting in 2011, this individual would be subject to Federal estate taxes at death. Even if this wealth was "split" between a husband and wife, estate taxes would be due at the death of the surviving spouse without proper planning.
There are effective ways of reducing your estate tax liability. They vary in complexity and require advice from qualified legal and tax counsel. Below are some options that might have relevance in your particular situation:
- Create a plan that protects both spouse's applicable estate tax exemptions;
- Establish an appropriate lifetime gifting program;
- Consider special charitable giving trusts;
- Remove life insurance from your taxable estate by creating a special life insurance trust;
- Remove the value of your home from your taxable estate by creating a qualified personal residence trust;
- Form a family holding company to hold certain assets and use the company as a gifting vehicle;
- Create a trust built to receive distributions from your Traditional and Roth IRA's;
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