Women and Money: Understanding Estate Taxes

I recently read an article on Boston.com from the Globe, “A new line of attack on Alzheimer’s” by Chelsea Conaboy (cconaboy@boston.com), in which she explained that researchers are developing tests that can identify Alzheimer’s in the brain before a loss in memory and reasoning abilities occurs. 

This will allow the shift researchers need to make to really provide disease-modifying treatment.  Not only would this allow for better medical treatment, but also alleviate what I many times experience with clients, being able to complete estate planning needs before a disease, such as Alzheimer’s, takes its toll, making it difficult to effectively setup necessary estate planning documentation if the person is not of sound mind and faculties.

Not having important estate planning documents in place could cause for increased estate taxes being imposed upon those left behind.  What could this mean to your family?

As of December 2010, the current federal estate tax exemption (technically known as the “applicable exclusion amount”) is $5,000,000 for those decedents dying in 2011 and 2012. It is not clear what the exemption level will be for subsequent years.

That means that if you die today and your total estate is worth $5,000,000 or less, your heirs will not have to pay any federal estate taxes on it. That’s a lot of money – so much, in fact, that people have a tendency to think they don’t have to worry about paying estate taxes that estate taxes only apply to the very wealthy.

With this new law, that is true for federal estate tax purposes. However many states in this country have state estate taxes with a much lower threshold. In many states the state estate tax exemption is only $1,000,000. In some states the rate at which assets exceed that exemption can reach a 16 bracket.

It is important to do the math. The truth is, you may be wealthier than you think. Your gross estate includes everything in the world you own – your home, your money market accounts, your bank accounts, your cars, your art collection, your jewelry, your retirement plan, your IRAs, your business and life insurance proceeds, everything. And when you add all that up, you may find yourself more interested than you could possibly have imagined in examining ways to help your survivors avoid paying estate taxes.

Estate Taxes

The taxes themselves offer an additional incentive for avoidance: Once you reach the estate tax exemption estate taxes are very, very high. This is true even though you have paid income taxes on your earnings your entire life. Under the current law, once your federal estate reaches the $5,000,000 exemption your heirs will end up paying 35 in federal estate taxes. In addition, if you are domiciled in a state that has a state estate tax or if you own real estate in a state which has a state estate tax then your estate will also owe state estate taxes. In virtually every state that has a state estate tax, that exemption is consid­erably lower than the federal exemption and the state estate taxes can be significant.

Estate planners use a number of techniques to defer, reduce, or eliminate the estate tax burden. 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently announced the release of an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

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