Do I Need to Worry About Having a Taxable Estate?
The answer to that question is "it depends". In 2001 the Economic Growth and Tax Relief Reconciliation Act raised the amount of assets you can leave to your heirs before federal taxes will be assessed. In 2007 and 2008, the applicable exclusion amount is $2 million dollars. This exclusive increases to $3.5 million in 2009, and is unlimited in 2010. However at the end of 2010, the applicable exclusion amount reverts back to levels prior to the passage of the Act in 2001 (approximately $1 million).
What that means in more straightforward terms in that for the next few years, things look pretty good, however it is unlikely that Congress will simply leave this Act alone, and more likely that there will be changes in the coming years, as this has been their historical practice. Consequently, most financial planners, CPA, and estate planning attorneys are always looking for ways to limit the amount of your estate that will be taxable upon your death.
Many people assume they have a modest estate and therefore have nothing to worry about, but consider that even a so called "modest" estate adds up. For instance, for many people their home's equity will comprise a large share of their total assets. Even though the rate of growth in housing prices have slowed here in the valley, home values remain at levels few of us could have envisioned 20 years ago. It is no longer unusual for a modest home to have a value of $500,000 or more.
Next consider your retirement plan assets. Particularly for those fortunate enough to work for a company that matches employee contributions to 401(k) plans, or that issues shares of company stock, again many have retirement assets in excess of half a million dollars. Consider also life insurance benefits, which while normally are not subject to income taxes, can be subject to estate taxes. Collectibles, including art and antiques, even base ball card collections can add up.
You can eliminate future tax surprises by understanding the value of your estate, and engaging an estate planning attorney to help you properly plan. The are many strategies available to you to limit your tax exposure, but the first step is to know upfront how large your estate is likely to me.
