People sometimes hear things about estate planning, and they go forward with incomplete information. This can lead to assumptions that yield negative consequences.
There are those who embrace the idea that the federal estate tax is only relevant to people who are extremely wealthy. It is true that there is a relatively high credit or exclusion. For the rest of the 2015 calendar year, the exclusion is $5.43 million. There are annual adjustments to account for inflation, so you may see a slightly higher figure year-by-year.
We are not suggesting that $5.43 million is next to nothing, but you have to understand the fact that your home is part of your estate for estate tax purposes, and of course if you have a second home that would be countable as well. Investment property would also be part of your estate.
Plus, some people who do not consider themselves to be wealthy own large tracts of land. This land may have been passed down over generations, and it may or may not be income-producing. Acreage that has appreciated considerably over generations can be very valuable, and this is another factor to take into consideration when you are calculating the value of your estate.
State Level Estate Taxes
We practice in the state of Indiana, and there is no state-level estate tax in our state. However, there are a number of states in the union that do impose state-level estate taxes. In these states, the exclusions are typically much lower than the federal exclusion.
If you own property in a state that has an estate tax, that tax could be applicable, even if you do not reside in that state.
Estate Tax Efficiency Strategies
There are estate tax efficiency strategies that can be implemented if the value of your real property is pushing your estate into taxable territory. One possible solution would be a qualified personal residence trust.
If you were to convey your home into this type of trust, you could continue to live in it for a period of time that you determine when you create the trust declaration. In this declaration, you would name a beneficiary who would inherit the home after the expiration of the trust term.
At the conclusion of the term, the beneficiary would be able to assume ownership of the home at a tax discount if things went according to plan.
Get All the Facts
If you have concerns about how taxation can affect your legacy, our firm can help. We would be glad to become apprised of your unique personal situation, gain an understanding of your objectives, and help you put a tax efficiency plan in place.
To set up a free consultation, send us a message through this page: Indianapolis IN Estate Planning Attorneys.