Estate planning: Tax Planning For Your Estate

Careful estate planning now can help reduce the amount of taxes your estate pays to the government upon your death—providing more for your loved ones and other beneficiaries.

You may not be able to avoid taxes while you’re living, but there are ways to reduce your estate’s taxes after your death.

Gifting now can reduce estate taxes later

Gifting truly keeps on giving. It reduces your estate’s worth, thereby reducing the taxes it may owe upon your death, and provides you the opportunity to watch your gift benefit your family members and other beneficiaries. Donations to charities can also help reduce your estate’s net worth.

You do need to be careful, however, when you gift in order to avoid the gift tax. When gifting, you can give up to $13,000 annually in cash, assets or a 529 college savings plan to as many people as you like without incurring the gift tax. Another option is to gift an unlimited amount in medical or educational expenses—paid directly to the institution—for another person.

Estate tax exemptions

If you happen to die in 2010, there is a silver lining—your estate will be tax-free! In 2001, Congress passed several changes to the federal estate tax law, one of which was the repeal of the estate tax for the year 2010. So, if you die this year then you don’t need to worry about estate tax exemptions.

If you live past 2010, however, you do. In 2011, the estate tax comes roaring back with some notable changes. The exemption amount will decrease to $1 million (previously it was $3.5 million) and the top estate tax rate will increase to 55 percent (previously set at 45 percent). What this means is that more estates will end up owing federal estate taxes.

But there are ways to reduce the amount of taxes your estate may owe through exemptions.

• Personal estate tax exemption. If your estate is worth less than $1 million, it won’t have to pay out any taxes when you die.
• Marital deduction. Any property left to surviving spouses who are U.S. citizens is exempt from estate tax.
• Charitable deduction. All property left to tax-exempt charities is exempt from estate tax.

For more information on reducing your estate tax liability, see Reducing Estate Tax by Making Gifts and Tax-Savings AB Trusts. It may also be wise to talk with an estate planning attorney or financial advisor to determine your options for reducing possible tax on your estate.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or attorney before utilizing any of the information contained in this article.

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