Ever heard of Benjamin Franklin’s comment “nothing is certain but death and taxes”? Although Benjamin Franklin may have been right about the certainty of the existence of taxes, what he failed to mention was the uncertainty of the actual estate tax to be levied on an estate in any given year. With the past decade of changing estate tax exemptions and rates, the estate tax has become a moving target.
With the federal estate tax exemption currently at $5 million, many Americans are breathing a sigh of relief, believing their estate will never reach such a high taxable amount. However, you must keep in mind that this exemption is currently only in place for 2011 and 2012, after which time the exemption sunsets back to the prior $1 million exemption limit. If nothing is done and the exemption returns to the $1 million level, many more Americans will again have estate tax concerns.
If you fall into this category, you should consider doing some additional financial and estate planning. Contact an experienced estate planning attorney to identify potential estate tax planning vehicles, such as using trusts to take advantage of each spouse’s federal estate tax exemption. Also, speak to a trusted Certified Public Accountant (CPA) about the possibility of transferring some of your familial wealth while you are alive in order to take advantage of your $1 million lifetime gift tax exclusion. If, even after taking advantage of these relatively familiar tax planning vehicles, you still have a taxable estate, there are more advanced estate tax planning vehicles that may also be implemented to further diminish your estate tax liability upon your passing. Or, in the alternative, there are some financial planning opportunities available through a trusted financial advisor, such as a well-planned life insurance strategy, which may be used to ensure your estate’s liquidity in order to pay for your estate taxes.
I don’t believe I have ever met someone who actually wanted to pay taxes. Through thoughtful, proactive planning, however, it is possible to minimize or even negate your estate’s tax liability.