Min­i­mize Taxes For Your Beneficiaries.

Many peo­ple feel they do not need a will because their tax­able estate does not exceed the amount allowed to pass free of fed­eral estate tax. These assump­tions, how­ever, should be reviewed given the cur­rent state of change in the fed­eral estate tax laws. The fed­eral estate tax laws in 2009, 2010 and 2011 are vastly dif­fer­ent, for the moment and, there­fore, it is impor­tant to have your will reviewed and updated as nec­es­sary this year.

Most wills were writ­ten with the exis­tence of a fed­eral estate tax. How­ever, due to a loop­hole in the law, both the fed­eral estate tax and the gen­er­a­tion skip­ping trans­fer tax were repealed at the end of 2009, leav­ing 2010 with­out either of these taxes. There is still the gift tax, with the exemp­tion of $1,000,000 dur­ing your life­time, but the tax rate is reduced to 35% in 2010. (In 2009, this rate was 45% and 2011, it will increase to 55%. For both years, the gift tax exemp­tion remains at $1,000,000.)

The fed­eral estate and gen­er­a­tion skip­ping trans­fer taxes, how­ever, are both sched­uled to return in 2011 at much less favor­able rates than seen in the past 10 years. In 2011, the estate tax exemp­tion amount will be $1,000,000 with a tax rate of 55% on the remain­ing estate. This com­pares to the 2009 exemp­tion amount of $3,500,000 with a tax rate of 45%. Many pro­fes­sion­als believe that Con­gress may retroac­tively reestab­lish the 2009 estate tax struc­ture for 2010. This, how­ever, remains to be seen.

Hav­ing your will reviewed dur­ing these chang­ing times is impor­tant as the tax con­se­quences have changed and unan­tic­i­pated taxes could arise. (For instance, inher­ited assets sub­ject to cap­i­tal gain taxes.)

Fur­ther, your tax­able estate may be larger than you think. For exam­ple, life insur­ance, qual­i­fied retire­ment plan ben­e­fits and IRAs typ­i­cally pass out­side of a will or of estate admin­is­tra­tion. But retire­ment plan ben­e­fits and IRAs (and some­times life insur­ance) are still part of your fed­eral estate and can cause your estate to go over the thresh­old amount. Also, in some states, the estate or inher­i­tance tax dif­fers from the fed­eral laws. A prop­erly pre­pared will is nec­es­sary to imple­ment estate tax reduc­tion strategies.

Tip: Changes in the estate tax laws and in the size of your estate may war­rant a re-examination of your estate plan.

Pre­cise Tax & Account­ing, LLC

Con­tact me at (845) 649‑7487 for con­tact infor­ma­tion for Pre­cise Tax & Accounting,LLC

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