Estate taxes are collected
by the IRS when an individual dies having too much money in
his or her estate. It is a serious tax. It begins at 41% and
can be as high as 49%.
Congress changed the estate tax rules in the Tax Relief
Reconciliation Act of 2001 and increased the level of
protection. It also created wonderment.
Commencing on January 1, 2002, the level of estate tax
protection increased to $1 million. That is, a person dying
in 2002 or 2003 will be able to pass along up to $1 million
to family members without exposure to estate tax.
Parenthetically, there is no change with regard to bequests
to one's spouse. Known as the "marital deduction," there is
no tax on any amount of money left to a surviving spouse.
In the year 2004, the level of individual protection
increases to $1.5 million. The level increases to $2 million
per individual in the year 2006. If death occurs in the year
2009, $3.5 million may be passed along without estate tax
exposure.
If death occurs in the year 2010, congratulations! The
estate tax is repealed in the year 2010. No estate tax due
on any amount.
But wait! The new law terminates on December 31, 2010. In
the year 2011, all additional protections disappear and we
are again at the $1 million level.
Because of this, we are convinced that Congress will revisit
this law and make changes. In 2011, it will likely be
politically unacceptable to roll back the level of
protection to the relatively modest level of $1 million.
What will happen? It is anyone's guess.
We believe that the level of individual protection will be
in the area of $2 million or $3 million. We do not believe
that the estate tax elimination will become permanent law.
What should you do about your estate and tax planning? If
you are a married couple and your estate is under $2
million, the "AB Trust" should be adequate, in that it will
provide $1 million worth of protection for each of you. If
your estate is between $2 million and $3 million, you will
not have complete protection until the year 2004. If your
estate is over $3 million, it is prudent to be conservative
and to seriously consider tax-wise planning options that are
available to you.
Our summary advice: If you are a married couple, your estate
is under $3 million, and you are in reasonably good health,
the AB Trust is adequate. You should be safe if you do not
take additional planning steps. If your estate is over $3
million, you should seriously consider planning steps that
can reduce or eliminate estate tax. Such steps include the
family limited partnership (FLP), a tax-wise irrevocable
trust into which you would transfer your residence for the
benefit of your children, and a number of planning tools
that might be appropriate in your situation. We can address
these planning options with you.
If you are a single person and your estate is over $1.5
million, prudence suggests that you learn about other tax
planning opportunities since the AB Trust is not available
to you. The FLP as the cornerstone of an asset transfer plan
may be ideal.
Finally, understand that a living trust may or may not
provide a degree of protection from estate taxes.
- For a single person it provides no estate tax protection
whatsoever.
- For a married couple it may or may not provide some
protection.
- If you have a large estate, additional planning is
necessary.
|
