Estate Tax Reform

Estate tax laws are often considered to be some of the most complicated in our tax code & keeping up with the reforms can be challenging. Taxpayers want to avoid leaving an inheritance to heirs and then having a significant amount turned right over to Uncle Sam courtesy of estate taxes.

For the short-term, the outlook is good. Congress has approved a schedule that increases the amount that an individual can leave to heirs tax-free. The estate tax exemption for 2008 is $2 million, and for 2009 it is $3.5 million. For the year 2010, estate tax is supposed to be repealed altogether (barring a likely change in legislation). However, by 2011 it is quite possible that not only will the estate tax be back in effect, but it will be costing taxpayers even more – possibly reverting back to what it was in 2001: only a $1 million estate and gift tax exemption and a 55% maximum rate.

So what does all this mean? As usual, planning and preparation is the key to minimizing taxes. Even with the above-mentioned exemptions, it can be easier than one would think to become subject to the estate tax. What’s more, estate taxes can be a huge hit to the pocketbook—-for every dollar left behind that exceeds the exempt amount, Uncle Sam gets 45 cents. Further, a lot of what happens down the road will depend on what happens in this election year. Even though the estate tax is supposed to go away completely in 2010, that is still a few years away and more reforms are likely. Until this repeal comes to fruition, estate tax planning is still a critical element of your financial strategy.

Some simple planning strategies can go a long way toward preserving your wealth for yourself and for your loved ones. Now would be an excellent time to evaluate your estate plan and make sure you aren’t making costly mistakes that will diminish your estate and end up paying large amounts to the government. Contact your HLBGC representative to schedule a review of your estate plan and develop an estate tax strategy that will help you achieve your goals.

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