Let’s say that you have reached the point where you are sitting in your favorite chair looking out the window contemplating your legacy. You may have a general idea of what you have to give and who you are going to give it to without having worked out all the details.
When you arrange for a consultation with an estate planning attorney to hash out these details, he or she is going to let you know whether or not your estate is exposed to the federal estate tax. If it is, you’re going to have to take steps to gain estate tax efficiency so that your legacy is not eroded by this heavy federal levy.
While arranging for an effective asset transfer is key from a purely pragmatic financial standpoint, the emotional state that your loved will ones will be in after you pass away is something to take into consideration as well. People don’t usually talk about it out loud, but if you look at it honestly your heirs are placed in a difficult, potentially conflicted situation.
On the one hand they are aggrieved due to their loss, but on the other hand this loss is going to result in a significant windfall of financial resources. It can be difficult to balance these two emotions comfortably.
This is one of the reasons why you may want to consider giving tax-free gifts while you’re still alive in an effort to transfer assets efficiently while reducing the taxable value of your estate in the process. There is a gift tax in place that carries the same 35% rate as the estate tax. But there are exemptions that can be utilized, and one of these allows for gifts valued at up to $13,000 per year to any number of recipients free of the gift tax.
If you take advantage of this exemption over a number of years you can reduce your estate tax exposure and share in the giving/receiving experience with those that you love in a purely positive manner outside the realm of any conflicting emotions.