For many years, the federal estate tax scheme provided essentially that by virtue of a dollar-for-dollar credit against the federal estate and gift tax liability (the “unified credit”), up to $600,000 worth of property could be sheltered from estate tax. As a result, basic estate planning focused on this amount as a threshold above which formal estate planning would be advisable.
More recent legislation has increased the value of property which can be sheltered from the estate tax, and currently the following amounts can be sheltered in the estates of persons dying in the years indicated:
1999 $ 650,000
2000 $ 675,000
2001 $ 675,000
2002 $ 700,000
2003 $ 700,000
2004 $ 850,000
2005 $ 950,000
2006 $1,000,000
At first blush, one might conclude that these increases in the value of property escaping the federal estate tax eliminate the need for estate tax planning. Not so! Many individuals with even modest investments in the stock market (especially mutual funds) have scored impressive gains in recent years, and these gains, combined with the ever increasing value of real property, can easily push an estate into the taxable range notwithstanding the recent increases in the estate tax credit.
Our recommendation is for clients to monitor changes in the value of their estates just as they monitor changes in the value of their investment portfolio. As your potential estate (including expected life insurance proceeds) approaches these threshold amounts, consider reviewing your estate plan to make certain that your affairs are structured in a way which minimizes the potential impact of the federal estate tax. To give you an idea, where the taxable portion (the portion which exceeds the credit shelter amount) of an estate is $500,000, the tax is roughly 37%, but as the size of the taxable estate increases, the tax rate approaches 55%. Sound planning can reduce the tax bite substantially and preserve assets for future generations. Wouldn’t you prefer that your children and grandchildren benefit from a larger share of your estate instead of Uncle Sam?
More recent legislation has increased the value of property which can be sheltered from the estate tax, and currently the following amounts can be sheltered in the estates of persons dying in the years indicated:
1999 $ 650,000
2000 $ 675,000
2001 $ 675,000
2002 $ 700,000
2003 $ 700,000
2004 $ 850,000
2005 $ 950,000
2006 $1,000,000
At first blush, one might conclude that these increases in the value of property escaping the federal estate tax eliminate the need for estate tax planning. Not so! Many individuals with even modest investments in the stock market (especially mutual funds) have scored impressive gains in recent years, and these gains, combined with the ever increasing value of real property, can easily push an estate into the taxable range notwithstanding the recent increases in the estate tax credit.
Our recommendation is for clients to monitor changes in the value of their estates just as they monitor changes in the value of their investment portfolio. As your potential estate (including expected life insurance proceeds) approaches these threshold amounts, consider reviewing your estate plan to make certain that your affairs are structured in a way which minimizes the potential impact of the federal estate tax. To give you an idea, where the taxable portion (the portion which exceeds the credit shelter amount) of an estate is $500,000, the tax is roughly 37%, but as the size of the taxable estate increases, the tax rate approaches 55%. Sound planning can reduce the tax bite substantially and preserve assets for future generations. Wouldn’t you prefer that your children and grandchildren benefit from a larger share of your estate instead of Uncle Sam?
– Kevin Palmer