Copyright (c) 2009 Tom Wheelwright
I don't need estate planning because my estate is not taxable.
As I've shared over the last few weeks, estate tax planning is only one part of estate planning. And while it's true that an estate with less than $3,500,000 in value is generally not subject to estate tax, there is still a need for estate planning.
I've been thinking a lot about the reaction I get from clients and prospects when we talk about the estate tax. The reaction that is most troublesome to me is the one from those whose estate is under the threshold because when I share with them that the threshold is $3,500,000, their reaction is one of relief.
Many people are relieved that the value of their estate is under the threshold so they don't have to worry about the estate tax!
If I were in their shoes, my reaction would be a little different. I would ask myself why my estate isn't big enough to be taxable. I would wonder why the wealth I've created is so small that the government isn't even interested in taxing it.
I would much rather be in the position where I have to focus on minimizing my estate tax because I have a huge estate rather than not having to worry about estate tax because my estate is too small.
Don't be relieved your estate isn't taxable If your estate is currently not taxable because it is under the threshold, then it's time to focus on building the value in your estate!
What to do if your estate is taxable Congratulations! It is a wonderful accomplishment to have built an estate that is valuable enough to be taxable. Taking action now is the most effective thing you can do. While the estate tax is a hefty tax (current 45%), having time, which means starting now, can greatly help you minimize your estate tax.
There are many things that can be done annually to start reducing your estate tax now. For example, an annual gifting plan can have an enormous impact on reducing your estate tax. While the amount that can be gifted each year without incurring tax may seem small (currently $13,000 per person per year to any individual), it can add up to a significant amount if done regularly every year and especially if combined with other strategies.
You don't have to lose control If you are like most people, a gifting program can sound a little scary because giving up control of your assets is not something you are interested in doing. There is good news here. It is possible to gift your assets and still maintain control of them! The key is in setting up your gifting plan properly.
Important Note! Don't lose your credit Every person's estate is entitled to claim the exemption that shields $3,500,000 from estate tax. If you are married, this means your combined estate with your spouse can be $7,000,000 and avoid estate tax. But, without proper estate tax planning, it is likely that one spouse will lose this credit unknowingly. The good news is, this can be fixed fairly easily with proper estate planning. If you are in this position, be sure to discuss this with your CPA!
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As I've shared over the last few weeks, estate tax planning is only one part of estate planning. And while it's true that an estate with less than $3,500,000 in value is generally not subject to estate tax, there is still a need for estate planning.
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