Accumulating wealth is a great thing, and you can feel as though you are in a position to help succeeding generations of your family when you have achieved your financial goals. This is true on the one hand, but you also have to take steps to protect your family wealth when you are planning your estate.
The federal estate tax is a looming threat to the wealth that you have been able to accumulate throughout your life. This tax carries a 40 percent maximum rate, so we are looking at a significant level of asset erosion.
A $5 million credit or exclusion was established in 2011, and it has been retained ever since, but there have been ongoing adjustments to account for inflation. After a series of adjustments, the current estate tax exclusion in 2015 is $5.43 million.
If you are transferring assets to someone other than your spouse, and the total value of your estate exceeds $5.43 million, the transfers that exceed the amount of the exclusion could potentially be subject to the estate tax. You can transfer unlimited assets to your spouse tax-free, because there is an unlimited marital deduction.
Estate Tax Efficiency Strategies
The looming specter of the estate tax is the bad news. The good news is that there are steps that you can take to mitigate your exposure. The are in fact different types of trusts that can be used to protect family wealth, but every type of trust is not useful for this purpose.
Many people create revocable living trusts. These trusts are useful for people who are not extraordinarily wealthy, because they facilitate efficient asset transfers outside of probate. This type of trust provides no estate tax efficiency, because of the fact that you can revoke the trust. You are retaining incidents of ownership, so the assets in the trust would be counted as part of your taxable estate.
Trusts that are used to protect family wealth would be irrevocable trusts. There are a number of different irrevocable trusts that are used by high net worth families who are seeking estate tax efficiency. These would include generation-skipping trusts, charitable lead trusts, charitable remainder trusts, grantor retained annuity trusts, and qualified personal residence trusts.
Learn More About the Estate Tax
You should certainly go forward with a solid understanding of the federal estate tax if you have enjoyed a very significant level of financial success. We have prepared an in-depth report on the subject, and you can access your copy through this website.
To get your copy of the special report, which is being offered on a complimentary basis at the present time, visit this page and follow the simple instructions: Free Report on Federal Estate Tax.
Joe Masiuk, Estate Planning Attorney
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