You will sometimes hear people say that you don’t have to worry about the estate tax because it is something that is only imposed on people who are rich. When you hear this you may want to engage in some critical thinking because blindly inculcating this notion into your thought processes as though it was a fact could wind up costing your family a great deal of money after you pass away.
What is your definition of rich? If Bill Gates and Warren Buffett are rich in your mind and you are thinking that only people in that stratosphere are subject to the estate tax you may want to do some research. The dividing line between people who must pay the estate tax and those who don’t is the estate tax exclusion amount. Due to the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 the estate tax exclusion is $5 million this year and through the end of next year. So if your estate is worth less than $5 million your family is not exposed to the tax–that is, if you pass away this year or next year.
This tax relief act is scheduled to sunset at the end of 2012. If it does so without any new legislation being enacted that alters the current laws, the estate tax exclusion will go down to $1 million in 2013 and the maximum rate of the tax will be 55%. Many people who would not describe themselves as being wealthy by any stretch of the imagination have been able to accumulate assets that exceed $1 million throughout their lives. In fact, there are over 8 million families in the United States who have at least $1 million in assets.
So, if you feel as though you don’t have to concern yourself with the estate tax because you are not wealthy and make no plans to gain tax efficiency you may be making a mistake.
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- Beneficiary Designations and Other Non-Probate Transfers - August 15, 2020
- Leaving Assets Can Be Tricky – Part 3 - August 13, 2020
