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Do You Have a Taxable Estate?

January 25th, 2011
Do You Have a Taxable Estate?

With so many changes in the estate tax laws lately, it's difficult to determine whether you have a taxable estate or not. Even tax advisors and estate planning attorneys have been scrambling to make sense of the situation and how current laws affect their clients. Your estate includes everything you own: your home, investments, life insurance policy, physical possessions and more. Once you add up these assets, you may be surprised at how large your estate actually is. To truly determine whether or not you have a taxable estate, consider the following factors.

    1. Only those who are married or recently widowed with more than $10 million in assets, or are single with more than $5 million in assets are affected by the current federal estate tax. But remember that most states have their own estate tax or inheritance tax laws as well, which can kick in at a much lower level. Illinois currently has an estate tax that kicks in at $2 million. This means that if you have a $2.2 million estate, you will be paying roughly $62,000 in estate taxes (which is a 31% tax rate on the money that exceeds the exclusion amount). Not an insignificant amount!

    2. The current federal estate tax is only temporary. The federal exemption limit and rate recently put in place will need to be evaluated once more before they sunset in 2012. So just because you might be off the hook now, you may have a taxable estate again in the near future. And, chances are, you'll be alive and well for years to come, long after the current tax rates have changed once more. That's why we recommend a yearly maintenance consultation with your estate planning attorney.

    3. Other taxes may affect your estate as well. Income tax rates can affect how you spend your retirement savings; capital gains tax rates can affect whether you hold or sell investments and property. Tax advice regarding these situations and how they can create a taxable estate cannot be applied generally: every individual's situation is unique in regards to the nature of their assets, their tax bracket, and the financial goals they have for themselves and their heirs.

If any of these factors seem to resonate with your own situation, consult with a tax advisor or estate planning attorney to plan for whatever the future holds for you, your estate and your family.


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