The Federal Estate Tax and How to Avoid It
The federal estate tax (often referred to as "the death tax") is a tax imposed on an estate that exceeds a certain dollar amount. Because that amount has changed from year to year and from Congress to Congress, tax avoidance planning can be difficult. For example, the estate tax exemption was $2,000,000 per person in 2008; $3,500,000 in 2009; $5,000,000 in 2011 and $5,250,000 in 2013. In short, it is anyone's guess as to what the exemption will be in the future. Thus, it is prudent to plan for the worst and hope for the best.
Despite the difference of opinion between the Democratic Party and the Republican Party with regard to the estate tax both parties agree that no tax should be paid by a married couple until the surviving spouse dies. This is referred to as "the Unlimited Marital Deduction" and it applies only if both spouses name the other as the beneficiary of his or her estate.
Unfortunately, the unlimited marital deduction only defers the federal estate tax, it does not eliminate it, and, of course, it is only available to married couples. Single persons and couples that co-habit are not eligible for the unlimited marital deduction. However, there are a number of estate planning tools that can reduce (and in many cases eliminate) the federal estate tax.
Options to Help Reduce your Estate Taxes
Clients who are proactive in terms of estate planning can significantly reduce (and in many cases eliminate) the federal estate tax. Some of the available means to accomplish this objective are:
- Making Gifts to family members, charities or friends during your lifetime.
- Establishing an Irrevocable Life Insurance Trust which removes the life insurance death benefit from the estate of the insured.
- Establishing a Living Revocable Trust for both spouses which enables the couple to increase their estate tax exemption from $5,250,000 to $10,500,000 of assets.
- Creating a Charitable Remainder Trust which removes the asset from the estate of the grantor and eliminates the capital gains tax when the asset is sold.
- Creating a Family Limited Partnership (FLP) or Limited Liability Company (LLC) enables one to gift shares of a family business, farm or ranch to family members without surrendering control of the business.
- The use of one or more of these estate planning tools can insure that the bulk of your estate goes to your family, friends and charities instead of to the federal and state government.
Are You Interesting in Learning More About Estate Tax Avoidance?
The Law Office of James A. Littlepage provides detailed and personalized
estate planning services to individuals and other Front Range communities, including developing a comprehensive plan for avoiding the federal estate tax.
To obtain knowledgeable legal assistance contact us.