Indiana estate planning involves different courses of action for different people. In a general sense everyone must execute a vehicle or vehicles of asset transfer. However, the optimal estate planning strategy will vary on a case-by-case basis.
When it comes to estate planning for high net worth individuals in Indiana, the matter of the federal estate tax can often come into play depending on the exact quantity of your financial resources. We say that the exact quantity of your financial resources is important because you are not exposed to the tax if your assets do not exceed the amount of the federal estate tax exclusion that is in place when you pass away.
This exclusion is subject to change, and this is one of the reasons why you should view estate planning as an ongoing process, especially if you are interested in wealth preservation. Your estate plan could originally be constructed at a time when you did not have assets that exceeded the estate tax exclusion amount. Subsequently the amount could be reduced, and/or your financial situation could improve. If you don’t make the necessary adjustments you are exposing your heirs to some significant taxation.
In 2013, the amount of the federal estate tax exclusion is $5.25 million. The maximum rate of the tax is 40 percent. This exclusion and top rate extend to the gift tax and the generation-skipping transfer tax as well.
When you are evaluating how you are going to use this $5.25 million exclusion you should understand a little bit about the unlimited marital deduction. Estate planning attorneys are frequently asked questions about this marital deduction, and we would like to provide some clarity here.
If you are married, you do not have to utilize some of your estate tax exclusion to leave behind assets to your surviving spouse. For that matter, you don’t have to use any of your exclusion to give large gifts to your surviving spouse when you are alive either.
Because of the unlimited marital deduction you can arrange for the transfer of any amount of money and/or property to your spouse either while you are living or after you pass away tax-free.
The tax man doesn’t mind this arrangement because your spouse would then be faced with the prospect of paying the estate tax on the assets that he or she inherited. However, what if your spouse was a citizen of another country? Under these circumstances he or she could leave the United States after inheriting your assets and perhaps die in his or her country of citizenship. If this scenario was to unfold the Internal Revenue Service would be left out in the cold.
For this reason, the unlimited marital deduction is only available to citizens of the United States.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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