The New York Times reports that the federal estate tax is scheduled to make its way back on the first of January of 2011. Unless Congress changes current law, this could affect a great deal of families and retirees who must decide on how to avoid estate taxes based on new estate tax thresholds. NY estate attorneys will also have to prepare their clients for the changes next year.
In 2011, $1 million from each estate may be exempt from the estate tax, and the tax on the balance will rise to 55 percent. To reduce the tax bill, you can give up to $13,000 a year to as many people as you like or count your gift against the $1 million lifetime exemption and avoid paying a gift tax. If you give more than that, you'll receive a 35 percent gift tax.
To protect assets for heirs without breaking bank, you could buy a one or two year term life insurance policy to cover the tax bill if the exemption amount is only $1 million. You must make sure your beneficiaries own the policy and not you, or the funds could be subject to tax and counted as part of your estate. If you are a widow or widower who remarries, you may leave an unlimited amount of money to your spouse with no estate tax. For this to work, your spouse must to be an American citizen, and the assets must be left outright or in a certain type of trust.
The earnings in the account of an education savings plan are also relieved from federal tax so long as the money is used to pay for tuition or other college or graduate school expenses. A potential drawback with this option is that a generation-skipping transfer tax will return in 2011, which means trust assets given to grandchildren will be taxed when withdrawn. There is no exemption from the tax.
To learn more about how the federal estate tax may affect your estate planning, meet with a NY estate attorney and discuss all legal options that are available to you.