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 A WORD ABOUT DEATH TAXES
Planning for the Large Estate
From an estate planning point of view, the two largest costs associated with death are probate fees and death taxes. Many people confuse the two. Probate fees are made up of various different charges including attorney's fees, executor's fees and court costs. Probate fees can be avoided by the use of a Revocable Living Trust. Unlike probate fees, death taxes are imposed by the federal government on estates that exceed $1,000,000 in value.
Estates that Exceed $1,000,000: If an estate exceeds $1,000,000 in value, a death tax return (Form 706) must be filed and all taxes paid within nine months following the date of death. The tax rate imposed starts at 37% on the value of the estate that exceeds $1,000,000 and reaches a maximum rate of 50%. Death taxes are not imposed on transfers between a husband and wife. One spouse may die and leave any size estate to their surviving spouse free of tax. However, at the death of the second spouse a death tax will be imposed on the married couple's combined estate to the extent that it exceeds $1,000,000 in value. This exemption is currently scheduled to increase over the upcoming years.
Planning Can Reduce Death Taxes. Through proper death tax planning, a husband and wife can increase the amount that they can leave to their beneficiaries free of tax from $1,000,000 to $2,000,000. This increase can be achieved by having an estate plan that contains a special "Credit Shelter Trust". The Credit Shelter Trust can be made a part of the couple's Revocable Living Trust estate plan. By using a Revocable Living Trust, which contains a Credit Shelter Trust, the couple can save on probate fees as well as death taxes. The use of a Credit Shelter Trust can save a couple more than $350,000 in death taxes and $46,500 in probate fees.
Other Tax Savings Techniques: As important as planning is for everyone, it is easy to see how proper planning becomes even more important for clients with larger estates. In addition to a Credit Shelter Trust for married couples, single clients whose estate exceeds $1,000,000 in value and married couples whose estate exceeds $2,000,000, may also benefit from such death tax planning techniques as an Irrevocable Life Insurance Trust, a Family Limited Partnership, Qualified Personal Residence Trust, Generation Skipping Trust or a Charitable Remainder Trust.
For more information, please contact Group Law Service at 661-325-3425.
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