Now that "tax time" is over for many Americans, the subject of taxes may not come up as often. In fact, when it comes to the estate tax you may not think about it until you sit down to plan for your estate. So what is this tax anyways?
A reader recently put these questions to the Q&A in The Wall Street Journal, which found its way to publication in “The Federal Estate-Tax Exclusion.” If you find yourself asking, “What is the $5 million federal estate-tax exclusion, and how does it work?” you’re not alone and here’s a start.
Essentially, the federal government has an estate tax that only kicks in above a certain amount that you (or the executor of your estate) can exclude. The exclusion amount determines what you can pass on without taxation and just how much of your net worth will get fed through the taxman’s ringer instead of going straight to heirs. The actual exclusion amount also changes when Congress changes the laws, which savvy readers will know is a fairly often occurrence these days. Currently, an individual can exclude a tidy sum of $5.34 million from his or her estate prior to paying a cent in estate taxes, which is slightly more than the $5.25 million in 2013. That’s a serious boon to your estate plan and means many can duck under the tax entirely!
As much as we like this simple answer, it’s important for many to learn much more about the estate tax and well beyond the answer given in the original article. The problem with Q&A’s, after all, is that finding simple questions matched by simple answers is not the same as learning the subject. There is much to learn here.
Did you know that the gift tax and the estate tax are linked? Did you know there are special tax rules that go into effect when giving directly to grandchildren? Did you know that how you pass along the house, the car or the collection can dramatically affect your heirs and their own taxes? The estate tax gets the media attention and it’s easy to give simple answers, but your estate isn’t necessarily so simple. If you want to ensure the best for your heirs, then there are many things to think about, both within and beyond the world of taxation.
Please visit our website for information on elder law and estate planning issues, and sign up for our free monthly e-newsletter. The archive on our website contains numerous blog posts on these legal areas as well. You can also “friend” us on Facebook (R Christine Brown) to receive periodic posts on elder law issues.
Reference: The Wall Street Journal (May 25, 2014) “The Federal Estate-Tax Exclusion”