Estate taxes were instituted in 1916 and since that date, all property of every individual has been subject to federal estate tax. The sole exception was 2010, when Congress was at a stalemate regarding what limits to tax at, if at all, and federal estate taxes were left off of the bill. After 2010, for 2011 and 2012, Congress set the federal estate tax rate at 35%. But, this tax would only apply to those estates valued at over $5.12 million for individual ($10.24 million for couples). The exception is that there is no federal estate tax when the entire estate passes from one individual to his or her spouse.
On January 31, 2012, the federal estate tax is set to revert back to the threshold of 2001-2002, when the federal estate tax rate was 55% and the exclusion amount was $1 million as opposed to the $5.12 million today unless Congress acts sooner to change this rate. Should the rates revert back there is a huge percentage of individuals that would be subject to the federal estate tax that were not previously subjected to them.
So, what does this mean? It means that estate planning will be necessary should a couple want to pass their inheritance to their children without 55% of their assets going to the federal government. This is a serious consideration. There are several estate planning tools, namely trusts, which can protect your assets and allow you to plan carefully to avoid federal estate tax entirely. Credit shelter trusts, irrevocable life insurance trusts and irrevocable living trusts are just some of the mechanisms to avoid life estate taxation. It is prudent to schedule a consultation with an estate planning attorney to see what route is best for you and your family.
Contact us at Miller|Conway, Estate Planning lawyers, at 843.764.3334 to schedule a consultation to see how we can help. You may also follow Miller|Conway, Goose Creek lawyers, on twitter, facebook and the firm’s estate planning page.