When considering estate planning, you need to be aware of the taxes that could be incurred if your assets are not properly distributed. Establishing a will and/or trust will ensure your money ends up where you desire. The amount of taxes paid to the government on accumulated wealth is enormously high. instead of “donating” money to government through taxes, make sure your money benefits those you love and care about after your death.
The IRS defines estate tax in this way: “The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death.” This isn’t a concern for most because the current tax laws allow assets up to $5 million to be passed on to a surviving spouse or heirs. However, if your estate is valued beyond $5 million, then the federal estate tax rate is 35%.
To calculate the value of your estate, keep in mind the IRS permits certain deductions from your Gross Estate to determine the Taxable Estate amount. “These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.”
Some states do have a state death tax. It is highly advisable to consult a good estate planning attorney to verify the tax consequences applicable in your state. You don’t want to be caught unaware. In a few states the estate tax exemption amount is lower than the federal government’s. For instance, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon and Tennessee where the state estate tax exemption is only $1 million, leaving a gap of $4 million in 2011 and $4.12 million in 2012.