Saving on Estate Taxes: It Could Apply to You

Estate Planning and You   

Do inheritance taxes only apply to the very wealthy? 

Better take a closer look!

The federal inheritance taxes start at estates of $650,000 in the 1999 tax year and $675,000 in 2000 and 2001.. This certainly sounds like a lot of money to many of us. Before concluding that this doesn't apply to you, let's take a look at some of the items people fail to consider in determining if this number should cause concern for them. The marginal tax rate above this limit starts at 37%. 


The value of your house, and your equity in it may have increased substantially since purchase. 

    Life Insurance

Life insurance proceeds do not go through probate, but are included in your estate. Your policy may include double indemnity in case of accidental death.

    Retirement Savings Plan such as 401K or IRA

This portion of the estate may feel a double tax hit. The first is due to the income taxes that need to be paid on it. The second would be if federal estate taxes are also due. If your $100,000 IRA resulted in your estate reaching $775,000 in tax year 2000, then 28% could go to income taxes leaving $72,000. Then another 37% to estate taxes leaving $47,250. With proper planning, it may have been possible to avoid the estate tax in this example. 

    A Possible Inheritance

Many baby boomers are nearing a point of inheritance. This has the potential to suddenly change your position with relation to the federal estate tax number. 

    The Value of the Holdings of a Spouse

When both spouses are US citizen's, the federal government allows in effect an unlimited estate transfer between husband and wife. With the addition of the assets of one spouse with the other, the remaining spouse may now exceed the $675,000 limit. If the unthinkable happened and you both met your end in an accident, would you want your children to deal not only with the tragedy, but also with Uncle Sam taking at least 37% of anything above $675,000? 

    The Exclusion

For the 2000 tax year, the exclusion amount equated to an estate value of $675,000. In the following years the exclusion amount equates to estate values as follows:

Tax Year Exclusion Amount
2000 $675,000
2001 $675,000
2002 $700,000
2003 $700,000
2004 $850,000
2005 $950,000
2006 $1,000,000

 A million dollars seems like a lot of money. However, $650,000 invested today at 8% will exceed a million dollars after six years. Also, note that the biggest jump in values in the chart occur in the later years. This is something that would be relatively easy for Congress to change between now and then.

A Caveat

The numbers in the table, and the $675,000 for the 2001 tax year are derived values based on the Unified Credit and current tax rates. The Unified Credit would be reduced prior to death if taxable gifts were being given.

More Information

This discussion was to allow you to determine if you are approaching a financial status where estate planning would save tax dollars. How to save those dollars is a complex and extensive subject. Here are  sources of additional information:

Website: SaveWealth
Provides brief explanations of some of the significant estate planning strategies.

Book: Generations, Planning Your Legacy published by the Esperti Peterson Institute. ISBN:0-922943-13-3 (For your convenience, here is a link to the title at Barnes and Noble booksellers)
A comprehensive yet readable book with coverage of sophisticated estate planning strategies. It also includes a section on planning for long term care for the elderly.

Attorney Information:
The National Network of Estate Planning Attorneys
410 17th Street
Suite 1260
Denver, Colorado 80202

Attorney Reference:
The Martindale-Hubble Law Digest
A directory available in legal libraries and many public libraries. Attorneys by region plus credentials.

Certified Financial Planner offering financial, business and personal development services in the Lehigh Valley, PA area.This Certified Financial Planner
 serves NJ & Eastern PA

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