One of the objectives of estate planning involves the prevention of asset erosion. You may think that transferring assets to your loved ones after you pass away should be something that you can do without incurring any significant expenses that reduce the value of your legacy. Perhaps unfortunately, the federal government has other ideas.
There is a federal estate tax in place that is imposed when people are passing along their assets to their heirs after they die. At the present time the rate of this tax is 35% so it is no small drop in the bucket. And as the laws stand on this day, the rate of the federal estate tax is scheduled to rise to a rather attention-getting 55% in the beginning of 2013, so this is a matter that you would do well to take very seriously.
Not everyone has to pay the estate tax, but contrary to popular belief it is in fact imposed on people who would not consider themselves to be extraordinarily wealthy. The estate tax exclusion draws the line in the sand between those who must pay the tax and those who are exempt.
At the moment the exclusion stands at $5 million, but when 2013 rolls around in addition to the rate of the tax rising to 55%, the exclusion is going down to just $1 million. This is going to result in a lot more people being exposed to the tax, and remember, the value of your home is indeed a part of your estate.
There are ways to gain estate tax efficiency however. Asset erosion due to the imposition of the estate tax is a very real threat to the legacies of many Americans. If you have not already addressed the matter, the wise course of action would be to arrange for a consultation with an experienced estate planning attorney to develop a personalized plan that provides you with estate tax efficiency.