There is a common misconception out there that can get you into some vulnerable territory when you are planning your estate. Some people think that the estate tax is only levied against “the wealthy,” but of course that is going to depend on your definition of wealthy. Due to the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the estate tax exclusion is $5 million at the present time. This means that only the portion of your estate that exceeds this amount is subject to the death tax, which is carrying a 35% rate.
If you think that having total assets that exceed $5 million makes you truly wealthy so be it. Whether or not this is a transgression that should be punished with a heavy tax is another matter that we will address at a different time. What we would like to convey here is that the estate tax parameters that are currently in place are set to expire at the end of 2012. If this takes place and no new legislation is passed in the meantime, that impacts the estate tax, beginning in 2013 the estate tax exclusion will be just $1 million and the rate of the tax will be 55%.
One million dollars may sound like a lot of money, but you don’t have to have been born into an old moneyed, blue blood family to have worked hard enough and invested wisely enough to accumulate assets that exceed this amount. A combination of the appreciation of your home value coupled with your individual retirement accounts, your savings and investments, and any assets that you may have inherited from your parents and grandparents may well add up to more than $1 million.
So before you ignore the matter of the estate tax with the understanding that you’re not wealthy, you may want to inventory your assets, identify the exact value of your estate, and keep a close eye on the estate tax parameters as 2013 approaches.
- Can I Be Held Personally Liable for Mistakes I Make Administering a Trust? - May 17, 2022
- What Is an Irrevocable Life Insurance Trust? - May 12, 2022
- Dying Is Expensive – How Funeral Planning Can Help - May 10, 2022