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The federal estate tax provides the right to pass property to others at death. Some states have an estate tax, some states have an inheritance tax. These taxes are sometimes referred to as death taxes.

Under the Tax Relief Act of 2010 only estates larger than $5 million are taxed and a surviving spouse can use the unused exemption of their deceased spouse. In 2013 The American Taxpayer Relief Act kept the transfer tax provisions intact with a slight rate increase. The Act prevents steep increases in estate, gift and generation skipping transfer tax that were slated to occur for individuals dying and gifts made after 2012. The exemption level remains $5,000,000 (as indexed for inflation). The Act also permanently increased the top estate and gift tax rate from 35% to 40%. The portability feature that allows the estate of first spouse to die to transfer his or her unused exclusion to the surviving spouse was also kept.

The estate for federal estate tax purposes is often confused with the “estate” for probate. These are two separate things. The probate estate is all the property that passes to heirs through a will or through state intestacy laws if one dies without a will.

Estate planning concerns itself with positioning assets. Using planning techniques to minimize the amount of estate tax due at death. Estate planning may reduce the probate estate but this is not the primary goal.

To simplify an estate consists of everything one owns at the time of death. That includes property in all forms such as real estate; intangible assets such as stocks, bond, and life insurance; and person property – cars, jewelry, antiques and cash. The trick to reducing federal estate taxes is to reduce the size of the estate at death. For the family business owner this is no easy task.

In an effort to minimize estate taxes there are several planning techniques to consider, such as:

  • Trusts
  • Gifts
  • Charitable gifts

Estate planning is complex. Estate laws are constantly changing. We recommend that when working with clients you rely on tax and legal advisors to assist you in this area as appropriate.

As Benjamin Franklin said, “In this world nothing is certain but death and taxes.”

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