You deal with taxes every year (technically at every time you open your wallet with a sales tax in play). Some taxes, however, only come to your attention when you really sit down to do some planning. For instance, the first time you really think about the estate tax may be when you sit down to plan for your estate. So what is this tax? What is the exclusion? What does it all mean?
A reader recently put these questions to the Q&A in The Wall Street Journal, which found its way to publication in “The Federal Estate-Tax Exclusion.” If you find yourself asking, “What is the $5 million federal estate-tax exclusion, and how does it work?” you’re not alone and here’s a start.
Essentially, the federal government has an estate tax that only kicks in above a certain amount that you can exclude. The exclusion amount determines what you can pass on, during life and at death, without taxation and just how much of your net worth will get be subject to tax instead of going straight to heirs. The actual exclusion amount also changes when Congress changes the laws. Currently, an individual can exclude a tidy sum of $5.34 million from his or her estate prior to paying a cent in estate taxes. That’s a serious boon to your estate plan and means many can duck under the tax entirely!
As much as we like this simple answer, it’s important for many to learn much more about the estate tax and well beyond the answer given in the original article. The problem with Q&A’s, after all, is that finding simple questions matched by simple answers is not the same as learning the subject. There is much to learn here.
Did you know that the gift tax and the estate tax are linked? Did you know there are special tax rules that go into effect when giving directly to grandchildren? Did you know that how you pass along the house, the car or the collection can dramatically affect your heirs and their own taxes? The estate tax gets the media attention and it’s easy to give simple answers, but your estate isn’t necessarily so simple. If you want to ensure the best for your heirs, then there are many things to think about, both within and beyond the world of taxation.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: The Wall Street Journal (May 25, 2014) “The Federal Estate-Tax Exclusion”