What if the Estate Tax Could Affect You? – Part One

By Doug Casarella – St. Louis, MO Attorney and LegalBuffet.com writer

Estate planning most of the time involves the quartet of basic estate planning documents: a will; a trust; a financial power of attorney, and a health care power of attorney. For many people across the spectrum of the middle class, the estate tax will not play a role in how any of these documents are shaped.

Currently (as of 2009), the exemption amount for the estate tax is $3.5 million dollars. That is, for a single individual (married folks, as is often the case, have more options) they need not concern themselves with the estate tax unless they die with more than that amount in their estate. Once the estate tax does apply, its rate will take a large bite. It currently maxes out at 45%.

However, at this time the estate tax is in a great deal of flux. The exemption amount will be unlimited in 2010 (effectively creating no estate tax) and then revert back to its 2001 level in 2011 ($1 million dollars). While it is unlikely it will revert to that lower number, for those who think that their assets could appreciate in value enough to worry about, or for those who are just curious, a basic knowledge of estate tax planning techniques can be helpful. Despite the recent economic downturn, stocks and real estate do appreciate over the long term, and coupled with insurance or other assets, people can be surprised at how much they own.

Like any good plan for reducing one’s tax liability, estate tax planning begins by looking for deductions. For the estate tax, there are two deductions used most often and to the greatest effect: the marital deduction and the charitable deduction. If you are single, obviously the marital deduction will be of no use to you but there are still many ways to reduce your potential liability. If you are married, clever use of the trust’s role in estate planning combined with the marital deduction can strongly reduce and, depending on your asset level, even eliminate your estate tax liability.

In part two of this article, we will look at the various kinds of trusts that can make use of both the charitable and marital deductions.

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