Without strategic preparation, a great deal of your life’s hard earned assets can be lost to estate taxes. Even though a will can simply transfer your estate property to the beneficiaries of your choice, it doesn’t have the special provisions to avoid advanced estate taxes.

The federal estate tax law has increased the exemptions on the estate tax, currently up to $11.7 million for 2021.  This means that each individual is allowed to transfer up to $11.7 million in property, cars, and possessions without being taxed. This amount is scheduled to increase annually due to inflation.

The taxable value of the estate is roughly calculated by one’s net worth. The net worth which is also known is “wealth” is the total DATE OF DEATH FAIR MARKET VALUE amount of assets minus all outside liability that an individual possess. Additional deductions may be taken out for legitimate charitable contributions and costs of settling the deceased’s estate.

If the estates exceed the amount that is exempted the amount of the tax rate is 40% and can be more. The tax rate is only applied to the amount that is exceeded, not the total amount.

Married couples have the luxury of transferring estate from one to another without being taxed. This means that couples are exempted from paying federal estate tax when one passes. This may be great news for couples who decide to leave their possessions for the other, but when the second passes the estate is no longer exempted from the federal estate tax, UNLESS the couple and the surviving spouse create and file the proper paperwork.

Generally the estate of the first spouse to pass away qualifies for the unlimited marital deduction. When the surviving spouse later passes away and leaves everything to the children, the combined value of the estates of both the husband and wife may exceed the exemption, subjecting the children to a possible 40% federal estate tax on the value over $11.7 million. However there is a way to utilize the $11.7 million exemption twice.

With the proper paperwork and certain conditions, the unused or unutilized exemption from the first spouse to die can be claimed on the federal estate tax return when the surviving spouse dies. This is known as “portability” and it could effectively double the exemption amount that existed at the time the first spouse dies.

Another special planning tool one can utilize is an “A-B trust” which is also referred to as a “Credit Shelter Trust”. This special trust works the same way as portability, except this one doesn’t require you to fill out any estate tax return at the time of the first spouse’s passing.

Even if one has taken full advantage of their exemptions, depending on their net worth, that individual might still have taxable estates. In this case, a more advanced planning technique would have to be created to avoid such a significant tax burden. Strategic techniques such as life insurance trusts, personal residence trusts grantor retained annuity trusts, and strategic gifting plans.

Estate tax planning can be very difficult, complex, and hard to execute, but with the help of the highly skilled and experienced estate tax planning attorneys at the Law Offices of Savin & Bursk, one can successfully pass on as much as possible of their hard earned assets to their loved ones.