As the saying goes, there is nothing certain in life except death and taxes. Although you cannot fend off death, you can make arrangements on how to reduce the amount of estate taxes you will pay upon your death.
Which leads me to the final part of the Wikipedia definition of Estate Planning: attempts to “maximize the value of the estate by reducing taxes and other expenses.”
Wait…what? I have to pay a tax upon my death? You mean a Death Tax? I HAVE TO PAY A TAX FOR DYING? Well, not really, no. But the federal government does impose a 40% tax on everything you own at the time of your death. (Seriously. 40%!!!)
But before you decide to join the witness relocation plan, just realize that most individuals will not be required to pay this tax. Everyone gets an exemption, or a “freebee” in the amount of $11.5 million dollars. In other words, the first $5 million is free; anything over that you have to pay a tax on that amount of 40%. And if you are married, this exemption jumps to $22 million before you are required to pay an estate tax.
For most of us, that is not a problem. Not a lot of people have more than $11.5 million in assets. But for the lucky few who do, 40% is A LOT of money to just give away to the federal government. So the final phase of the estate planning process is to use special strategies or even “loopholes” in the tax code in order to reduce and possibly eliminate the amount of estate tax you will have to pay.
So there you go. I have just provided a long, albeit simplified, description of what an estate-planning attorney does on a daily basis. So to summarize my first four blog posts into one sentence: an estate planner establishes what your assets are, who you want to give them to, and determine the most efficient method of transferring those assets all while attempting to reduce and even avoid your paying of an estate tax.
Next up: Don’t really have a lot of stuff? Read Estate Planning for the Rest of Us….