Abstract
When I asked you who your estate plan will benefit, I’m pretty sure you didn’t mention the government. The good news? Although you might not be able to disinherit Uncle Sam entirely, there are lots of ways to reduce the government’s stake as a beneficiary of your estate. Before we go there, let’s take a stroll through the tax code.
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Notes
- 1.
Those of you living in one of these states are in the joyful position of needing to worry about two estate or inheritance tax scenarios when you die: federal and state. Are you reading this in Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, or Washington? Sorry! (See the “State Estate or Inheritance Tax” section of this chapter.)
- 2.
I’ll give you specific estate plan blueprints to minimize taxes in Chapter 14, “Planning Guide for Marrieds,” but you need to understand the structure of the estate tax to evaluate which options work best for you. That’s what this chapter is about.
- 3.
Special estate tax laws govern noncitizens. If this applies to you, you should look at Chapter 19, “Planning Guide for Noncitizens,” for the rules you need to be aware of as well as the ways to structure an estate plan to comply with them.
- 4.
Look back at Chapter 6, “Trust in Trusts,” for my description of a QTIP trust, which is a trust for the surviving spouse who qualifies for the marital deduction. Same-sex couples and unmarried couples need to remember that this doesn’t apply in your situation. You need to be more creative to minimize estate tax. See Chapter 16, “Planning Guide for Unmarried and Same-Sex Couples.”
- 5.
Two points of clarification. First, if you pay estate tax on your retirement plan, then your beneficiary can credit a portion of the estate tax paid against their income taxes when a distribution from the retirement plan is made. Also, charitable planning for a retirement account makes the best sense in a single individual’s estate plan, because there would be no estate tax on the retirement plan if it passed to a spouse.
- 6.
If you’ve made large gifts in the past or are considering making such a gift in the future, you should study Chapter 9, “Gifting.”
- 7.
In case you think these tax rates are ridiculously high, they’re actually at a historic low. From 1942 to 1976, the top estate tax rate was 77 percent, with a mere $60,000 estate tax exemption amount.
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© 2013 Deirdre R. Wheatley-Liss
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Wheatley-Liss, D.R. (2013). Taxes. In: Plan Your Own Estate. Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4302-4495-0_8
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