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Some of the highest taxes Americans pay are
for their accumulated wealth when they die and gifts they give
while they are still living. Both federal estate and gift tax
rates are currently an astronomical 45% for which either the
heirs of the estate or the donor of the gift ultimately takes
the hit. In addition, state taxes may be added to the already
high federal tax rates depending on the location of the donor or
person who dies. Unless an estate is structured through clever
pre-planning over 50% of the total value of the estate could be
paid to the government in the form of taxes. Despair not, with
some estate planning forethought and the help of a skilled
estate planning and tax attorney, you can reduce or even
eliminate tax liabilities associated with your estate and
preserve your wealth for your heirs.
Many people don’t worry about their estate
tax liability because they are convinced they will die before
their spouse. They know all their assets pass to that spouse tax
free. That is partially true. Property and money can be passed
tax free during the married couple’s lifetimes and through the
inheritance by one spouse of the other’s estate. Problems with
this strategy for avoiding estate taxes come when the second
spouse dies. When the first spouse dies the estate passes to
the other tax free. The still living spouse’s estate has
increased in value without preserving a potential tax credit
(“unified credit”) for the ultimate distribution to their
children or other down line heirs of the full estate.
Each person has one “unified credit” that can
be utilized by that person’s estate upon death. However, if an
individual dies and leaves the entire estate to a surviving
spouse without any estate tax planning, the “unified credit” is
now lost to any children or other down line heirs of the
ultimate estate. With the assistance of an estate planning
attorney, the “unified credit” for the deceased spouse can be
preserved so ultimately both spouses’ individual “unified
credits” are combined and can be utilized by the down line heirs
upon the second spouse’s death.
Although likely to change over the next few
years as government administrations change and estate statutes
expire, the 2009 “unified credit,” available to each individual
is currently $3.5 million dollars in value. That means if an
individual dies in the year 2009, the first $3.5 million dollars
of their estate is exempt from taxes even if there is no
surviving spouse. This exemption cannot be transferred to
another individual, and will be lost if not used or if that
person’s estate passes to a spouse outside of a tax planning
trust. For example, if a husband predeceases his wife, the
entire estate passes to the wife free of taxes. In this case,
the husband’s “unified credit” is not required and, therefore,
is lost and unavailable to any future heirs. The husband’s
assets become part of the wife’s total estate. When the wife
dies, her estate will pass to her heirs, often her children or
grandchildren. The wife’s total estate is now subject to estate
taxes, and she only has her individual “unified credit” to
offset those taxes. If this husband and wife had thought ahead,
they could have had $7.0 million dollars in value to pass to
their children and other heirs tax free in 2009.
A common tool used in estate plans to take
full advantage of both spouses’ “unified credits” is called a
“by-pass trust.” Sometimes you will also hear it referred to as
a “shelter trust,” “marital and family trust” or “unified credit
trust.” This trust is created by skilled estate planning and
tax attorneys to maximize the amount of the estate exemptions
for their clients. Don’t be fooled, you may be thinking you
don’t have enough assets to justify the need for this type of
trust, but remember that in certain years the “unified credit”
has been as little as $1 million dollars and under current law
will go back to this amount in 2011. When most folks add-up the
value of their retirement accounts, life insurance policies and
equity in real estate, they come very close to the lower-end of
the “unified credits” seen in the past. This means you should
seriously consider preserving your wealth through a solid estate
plan and preventing Uncle Sam from getting his hands in the
pockets of your heirs.
For more information on gift taxes and other
estate tax planning tools, please visit our website at
www.TheTiptonLawFirm.com or contact an estate planning or
tax attorney at:
The Tipton Law Firm
3200 Cherry Creek South Drive, Suite 650
Denver, Colorado 80209
303-220-8428 |
