When you are planning your estate, one of the first things to take into consideration is your exposure to the estate tax. Many people who are just beginning to delve into the subject are taken aback when they hear the details. Right now, the top rate of the estate tax is 35%. If that sounds like a lot, consider the fact that it was 45% in 2009, before the one-year repeal in 2010.
And, if no new legislation is passed in the meantime, the maximum rate of the estate tax is scheduled to go up to 55% in 2013. No, that is not a typo; the estate tax will consume more of the taxable portion of your estate than you heirs will receive.
The question of whether or not you need to be concerned with estate tax exposure revolves around the overall value of your estate relative to the estate tax exclusion at the time of your death. Right now, the estate tax exclusion sits at $5 million, but it is scheduled to go down to just $1 million in 2013, as the rate of the tax goes up.
A logical step to take to gain estate tax efficiency would be to give gifts to your loved ones while you are still alive, and there is a $5 million lifetime gift tax exemption. But, it is unified with the estate tax exclusion. So, you can’t give gifts totaling $5 million tax-free and then have the first $5 million of your estate pass free of the estate tax. You have a total exemption of $5 million for both gifts and the legacy that you leave behind after you pass away.
To gain an in-depth understanding of how to respond to these federal levies, simply contact an experienced estate planning attorney to arrange for a consultation.