Government Law Newsroom

Estate Planning Protection Transfers Your Assets To Your Beneficiaries Quickly And Usually With Minimal Tax Consequences

Planning your estate is to distribute your assets according to your wishes after your death. Successful estate planning transfers your assets to your beneficiaries quickly and usually with minimal tax consequences. The process of estate planning includes inventorying your assets and making a will and/or establishing a trust, often with an emphasis on minimizing taxes. This pamphlet provides only a general overview of estate planning. You should consult an attorney, or perhaps a CPA or tax advisor for additional guidance.

Do I Need to Worry?

You may think estate planning is only for the wealthy. If your assets are worth $1,000,000 or more, estate planning may benefit your heirs. That's because generally taxable estates worth in excess of the amounts in the chart below may be subject to federal estate taxes, with rates as high as 45% to 50% of the taxable estate.

Adding up the value of your assets can be an eye-opening experience. By the time you account for your home, investments, retirement savings and life insurance policies you own, you may find your estate in the taxable category.

Even if your estate is not likely to be subject to federal estate taxes, estate planning may be necessary to be sure your intentions for disposition of your assets are carried out.

YEAR EXCLUSION AMOUNT HIGHEST ESTATE TAX RATE
2002 $1,000,000 50%
2003 $1,500,000 49%
2004 $1,500,000 48%
2005 $2,000,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%

It is also important to note that estate taxes are scheduled to be repealed in 2010. However, if Congress does not affirmatively extend the repeal, in 2011 the estate tax law will revert to the provisions in effect in 2001 including a $1,000,000 exclusion amount and a 55% highest estate tax rate.

Taking Stock

The first step in estate planning is to inventory everything you own and assign a value to each asset. Here's a list to get you started. You may need to delete some categories or add others.

Residence
Other real estate
Savings (bank accounts, CDs, money markets)
Investments (stocks, bonds, mutual funds)
401(k), IRA, pension and other retirement accounts
Life insurance policies and annuities
Ownership interest in a business
Motor vehicles (cars, boats, planes)
Jewelry
Collectibles
Other personal property
Once you've estimated the value of your estate, you're ready to do some planning. Keep in mind that estate planning is not a one-time job. There are a number of changes that may call for a review of your plan. Take a fresh look at your estate plan if:

The value of your assets changes significantly.
You marry, divorce or remarry.
You have a child.
You move to a different state.
The executor of your will or the administrator of your trust dies or becomes incapacitated, or your relationship with that person changes significantly.
One of your heirs dies or has a permanent change in health.
The laws affecting your estate change.
How Estates Are Taxed

Federal gift and estate tax law permits each taxpayer to transfer a certain amount of assets free from tax during his or her lifetime or at death. (In addition, as discussed in the next section, certain gifts valued at $11,000 or less can be made that are not counted against this amount.) The amount of money that can be shielded from federal estate or gift taxes is determined by the federal applicable credit. The credit is used during your lifetime when you make certain taxable gifts, and the balance, if any, can be used by your estate after your death.

Keep in mind that while you can plan to minimize taxes, your estate may still have to pay some federal estate taxes. What's more, your estate may be subject to state estate or inheritance taxes, which are beyond the scope of this pamphlet. An estate planning professional can provide more information regarding state taxes.