There is a misconception out there about the estate tax only applying to those who are wealthy. For this reason a lot of individuals don’t think it is relevant to them, but in reality millions of Americans will be exposed to the estate tax in 2013 as the laws stand on this day.
In 2013 the estate tax exclusion is going to be reduced to just $1 million. There are over 8 million American households that are in possession of assets exceeding this amount. When think about tax in general you expect a relatively small percentage. But believe it or not, in 2013 the rate of the estate tax is scheduled to come in at 55%. This extraordinary rate is one of the reasons why so many people feel as though the estate tax is not an instance of fair and just taxation.
To mitigate your exposure to this extreme source of asset erosion you must take steps to gain estate tax efficiency. The creation of certain types of trusts can be useful to this end. For example, you can significantly reduce the taxable value of your home by placing it in a qualified personal residence trust.
This act removes it from your estate for estate tax purposes, but it is considered to be a taxable gift. However, when you create the trust you set a term during which you will remain in the home as usual.You are retaining interest in your home as long as you continue living in it, and the taxable value of the property is reduced by this retained interest. So by the time it is transferred to your beneficiary after the term has expired the taxable value will be significantly less than the true fair market value.
The QPRT is just one useful type of trust. There are many different estate planning tools that can be implemented, and if you would like to explore them in detail take a moment to arrange for a consultation with an experienced estate planning attorney.