Passing on the wealth you’ve accumulated over the years to your heirs isn’t always as easy as it seems. With the $1,000,000 estate tax exemption scheduled to come back in 2011, a much larger group of people will be paying inheritance taxes in the coming years. Fortunately, smart estate planning can help at least minimize those taxes so that the bulk of your estate goes to your heirs and not Uncle Sam.
- The Gift Tax exclusion is an important exemption that you don’t want to overlook. This allows you to gift money up to a certain amount each year, without any tax consequences. The important thing to remember is that you cannot carry it over to the next year so it is necessary to use it within the same year, or you will lose it. Under the law, you can gift up to $13,000 to the same individual each year in addition to a lifetime exclusion of $1,000,000. This $1,000,000 lifetime gift reduces the amount you can leave at death; the $13,000 annual gifts are in addition to this. In addition, gifts to spouses (if a US citizen) and those made directly to a medical provider or school are exempt as well. So, unless you have a very large estate, you could theoretically pass the majority of your estate to your heirs tax free.
- Because funeral expenses can be used as a tax deduction for the estate, this can lower the total amount of taxes that your loved ones will have to pay. So will a gift to charity.
- The portion of an estate that is left to a surviving spouse is also exempt from taxes, as long as the spouse is a citizen of the United States, and no other party has an interest in the property or assets being inherited by the spouse.
The bottom line – consulting with an estate planning attorney can ultimately save you and your loved ones money in the long run.