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Estate Planning: Find Out About the Taxes and
Other Expenses Now
When you're planning your will and making provisions for your
final expenses, plus provisions for the distribution of any
wealth you leave behind, understand how estate taxes work is an
important part of the plan. If you fail to understand these
laws, you may unintentionally leave your loved ones in a bind,
facing complicated tax procedures, not to mention a hefty bill.
For the sake of your heirs, plus your own peace of mind, take
the time out now to education yourself about estate tax laws
and make sure everyone involved with your state understands
these laws and restrictions as well.
First, look at what exactly estate tax is. Estate tax applies
to everything you own, plus all of your cash, securities,
trusts, stocks, insurances, etc. Basically, everything you have
of any financial value is considered to be part of your estate
and is subject to estate tax. To calculate the value of your
estate, an auditor will look at your financial worth, in the
form of cash, stocks, insurance, and so on, and then will add
that amount to the fair market value amount of all of your
possessions. It is important to note that the fair market value
is not necessarily the purchase price of the item; for
instance, in the case of a car, the depreciated value of the
car at the time of your death is the figure used, not what you
paid for it. The sum of your financial wealth plus your
possessions is called your Gross Estate.
When your Gross Estate amount has been calculates, deductions
are then applied. Deductions can be for anything from leaving
money behind to cover the mortgage payments of a surviving
spouse to charitable donations to debt repayment. After these
deductions have been made, the figure you are left with is
called your Net Taxable Estate. With your Net Taxable Estate
figure in mind, the government then considers cash gifts you
have given to your heirs over the course of their lifetimes,
beginning with gifts given in 1977 and then moving forward. If
the total amount of the monetary gifts given to your heirs by
you in life, plus the amount of the estate you have left to
them in your death exceeds $2 million, then your estate is
subject to estate tax.
Obviously, many people do not leave behind an estate of this
size; in fact, only about 2% of Americans ever find themselves
subjected to estate taxes. However, if there is even a
possibility of your heirs getting hit with this hefty and
complicated tax, you should begin to make provisions now to
mitigate their tax burden. Work with your accountant to develop
a rough figure for your total estate amount, and then see where
you can find deductions. Include a charitable contribution in
your will, or if your heirs will be selling some of your
property, consider selling some of it now before your passing.
If you own a business that will put your estate over the $2
million mark, make one of your heirs half owner with your in
life, so that only half of the net worth of the business is
considered in your estate.
When estate tax comes into the picture, large sums of money are
being dealt with, and the tax laws surrounding this money are
extremely complex. There is no guidebook that works for
everyone; each case is unique. The most important thing you can
do while estate planning is make sure you are working with a
reputable and trustworthy financial advisor that can guide you,
and then your heirs, through this process.
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