Should You Worry About Estate Taxes While Planning Your Estate?

No matter how young and healthy you are, it is important to make considerations for your family and friends in case of an unexpected accident or illness. Estate planning, including the drafting of a will and officially stating your medical preferences, can help your loved ones make important decisions and receive their fair share of your belongings after your passing. But how much of your assets can you really leave behind, and how much will be claimed by estate taxes? Understanding how estate taxes apply to your property can help you properly plan for your loved ones, without leaving them to foot the bill. 

Valuing Your Assets

It is nearly impossible to plan for your estate without knowing what exactly it encompasses. Your home and the contents of your bank account are merely one part of your overall wealth. Life insurance policies, IRAs, 401K accounts, vehicles, businesses, annuities and any unresolved debts must also be accounted for. Your estate lawyer will be able to walk you through everything you own and can pass on to your loved ones before calculating their total value.  

Choosing Your Inheritors

Before you begin to worry about estate taxes, your next step should be to choose how those assets will be divided among your family and friends. Spouses typically qualify for a marital deduction, meaning anything your husband or wife inherits should not be subjected to estate taxes. The remainder of your belongings are known as taxable assets, and their combined value will determine whether or not your estate will be taxed following your passing.  

Understanding Estate Tax Laws

In 2016, the minimum amount needed to qualify for federal estate taxes is 5,450,000 dollars. If you are leaving behind taxable assets worth less than that figure, then you do not need to worry about federal estate taxes at all, and your inheritors will be able to receive the full value of their inheritances. One of the more common points of contention in estate planning is the transfer of a small business, which can often be worth more than the federal minimum. You will need to consult with both your lawyer and your descendants to decide whether the business should be transferred or liquidated to cover the estate costs. Also check whether or not your state has its own estate tax, which may kick in at a lower value than the federal minimum. 

Incorporating Taxes Into Your Estate Planning

If you do qualify for state or federal estate taxes, you should periodically update your estate planning to accommodate them. This will prevent your inheritors from being slapped with an uncomfortable bill after your departure and ensure that they are well equipped to divide up your assets and arrange your funeral. As unpleasant as it may be to think about, taking the responsibility of legally preparing for your own passing can be one of the greatest gifts you leave behind for your loved ones. 

For a lawyer specializing in estate planning, contact a law firm such as Linn Schisel & DeMarco Attorneys At Law.

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