7 Major Changes in Your Estate Plan for Better Tax Exemptions

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Estate Plan

The federal estate tax exemption threshold for 2016 is $5.45 million, and any amount above that is subject to a 40% tax. The exempt amount is annually adjusted for inflation and is anticipated to rise over time. State inheritance and estate taxes differ. Your estate might be exempt from federal taxation but still be required to pay a state death tax since they can be applied at a lower amount or level.

Add up all of your assets, then deduct all of your debts to get the current net value of your estate. Include your house, your business’s interests, your bank accounts, your investments, your personal property, your IRAs, and your retirement plans. Death benefits from any life insurance plans for which you have “incidents of ownership” must also be factored in. These insurance contracts allow you to identify or modify the beneficiary, borrow money against them, assign them, or cancel them.

You won’t pay estate taxes if the net value of your estate is less than the exempted amount. However, every dollar above the exempt threshold will be taxed if it is more significant.

Attorneys for estate planning are essential both during the estate planning process and later throughout the probate court process. They know the regional and national regulations that will affect your estate.

Estate planning lawyers, also known as estate law lawyers or probate lawyers, are skilled and qualified legal experts with in-depth knowledge of the state and federal laws that impact how your estate will be accounted for, evaluated, distributed, and taxed after your passing. An estate planning lawyer can help you with the following responsibilities in addition to educating you on the probate procedure:

  • Developing a will
  • Choosing your beneficiaries
  • Making a durable medical power of attorney and durable power of attorney
  • Whenever possible, reducing and avoiding estate tax
  • Figuring ways to get around the probate court procedure

In addition to helping you create legally binding documents like wills and durable powers of attorney, estate planning attorneys frequently charge flat fees for their services. However, they can also be hired on an hourly basis to assist you in managing your estate, acting on your behalf to resolve disputes when necessary, and ensuring that your will is carried out as intended when necessary.

The process of a probate court can be navigated by anyone with power of attorney over an estate of a recently dead individual with the help of an estate planning attorney. The sort of assets in the decedent’s estate and how they can be transferred legally will primarily determine whether or not an estate planning lawyer can assist you in altogether avoiding probate court.

It might be to your best advantage to speak with an estate planning lawyer right away if a beneficiary (or even someone who is not listed as a beneficiary) declares that they intend to contest the will and sue the estate of a deceased relative or loved one from whom you also stand to benefit. These litigation have the potential to quickly deplete the estate’s assets and harm all beneficiaries.

What, then, can you do to maximize your estate tax exemption?

Married couples

Your exemption can “double” in value. Both spouses can use their estate tax exemptions, shield up to $10.9 million (as of 2016) from estate taxes, and save up to $2.18 million in federal estate taxes by establishing an A-B living trust. You can save more money for your family when the exemption rises in line with inflation changes. A will can be used for this form of estate tax planning, but you won’t be able to avoid probate or gain the additional advantages of a living trust.

Review the language

Make sure the language to apply for your exemptions in an A-B living trust you already have is flexible. It does not specify a specific monetary amount (such as $1 million or $2 million). A formula or phrase like “the amount that is exempt from estate taxes at the time of the grantor’s death” should be used instead. The best course of action will be known to your attorney.

Transfer assets

When the exemption grows, you might need to transfer assets from one trust to the other if you and your spouse have separate beliefs.

Use trust instead

Consider switching to a living trust now if your will serves as the main component of your estate plan. Although it will undoubtedly initially cost more, it can eliminate probate, prohibit court control of assets in the case of incapacity, and allow you more choices over how your estate is distributed after your passing. A living trust is a much better estate planning instrument for most people.

Give presents

If you have a sizable estate, you should donate part of your possessions to the individuals or groups that will inherit them after your passing. Why? First of all, seeing the results of your efforts can be immensely fulfilling; you cannot achieve this if you hoard everything until your passing. Second, by reducing the size of your taxable estate through gifts, you can significantly lower estate taxes. (Be careful not to give away any assets you might need in the future.) There are appropriate and improper ways to approach this, as with any legal tactic. If you’re interested in this, speak with a lawyer before you give anything away because giving the “wrong” assets could have income tax repercussions. However, many families can provide as much as they like to family members without worrying about gift taxes because the exemption is now so high.

Take assets at a loss out of your estate

Your attorney can propose some extra planning choices if the size of your estate exceeds the exempt amount (or exceeds two exemptions if you are married), allowing you to transfer assets to your loved ones at lower prices while maximizing the value of your exemption (s). Given that the IRS and many members of Congress are constantly seeking new methods to raise tax income, some of these possibilities may be eliminated in the future. So while they are still accessible, this is an excellent opportunity to include them in your preparation.

Have a competent attorney review your plan once a year 

Your estate plan is a snapshot of your financial situation including your assets, family, goals, and the tax laws in force at the time it was created. It would help if you reassessed your plan whenever one of these developments occurs. The moment is right to get your plan reviewed this year.