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Avoiding estate taxes requires early planning

by | Jul 11, 2014 | Estate Planning |

People in California may have seen an interesting financial news editorial in Forbes recently. The article discussed the ways in which estate planning can shield people from unnecessary taxation, but that is really only the beginning of the benefits that an estates and trusts attorney can provide to people with substantial estates and complex estate planning needs.

The estate tax can be absolutely devastating to people who die with significant assets, which is one of the reasons why the estate tax continues to be such a controversial topic in the debate over the role of government and taxation. To make matters worse, the estate tax is essentially a tax on income that has already been taxed. Most people who work hard during their lives to accumulate wealth have to pay taxes on their income and capital gains as they go, only to see their estate taxed yet again when they want to distribute their wealth to family members and loved ones.

Fortunately, though, people won’t have to worry about estate taxes until they reach a significant threshold. For individuals, the estate tax doesn’t kick in unless the value of the estate exceeds roughly $5.3 million. But when it does kick in, it kicks hard, with 40 percent of everything in excess of this amount going off the top to Uncle Sam.

People should keep in mind that there are tax-free distributions they can make during their lifetime that will save them from the estate tax upon death. Perhaps the most significant is the marital exemption, which allows married couples to pass property freely and without tax consequence to each other. If properly planned, using the marital exemption and other exemptions could save a lot of money from unnecessary taxation. It’s never too soon to start planning, especially when the simple act of speaking with an experienced estate planning attorney can put a person on the path to estate tax savings.

Source: Forbes, “Worry About Your Estate Plan, Not The Taxes,” Steve Parrish, July 1, 2014

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