Under the American law, when any person dies, their estate has to pay certain estate taxes. Estate taxes have to be paid if the value of an individual’s net assets (assets minus debts) exceeds the maximum exempt limit allowed by the law at the time of death. In 2004, federal estate taxes start at a minimum of 45% and could go up to 48%. These have to be paid in cash, within nine months of the person’s death. This is where estate planning can be very useful. With careful and efficient estate planning, a person can minimize the burden of taxes to be paid on his estate after he dies.
Need For Estate Planning
When a person dies intestate (without any will or trust), his estate is distributed according to the existing state laws. Under the state laws of intestacy, the assets are distributed exactly as per the law and there is no consideration given to any wishes of the deceased. Thus it is very important to have a will, trust or any other kind of estate planning measures so that a person’s estate can be distributed to his legal heirs or to whoever he chooses instead of the law deciding who gets what.
Estate Tax Determination
Certain things have to be determined for efficient estate planning. These are:
Usually anywhere between 20%-50% of the net value of the estate can be taken away by the IRS as estate tax. Estate planning can thus help to reduce the estate taxes.
Estate Planning Techniques
As of 2004, the maximum net value of an estate that is exempt from tax is about $1.5 million. Anything above this is subject to taxes. There are a lot of ways by which an individual can plan his estate so as to pay only the minimum amount possible as taxes after his death. Some of these are:
These are just a couple of techniques for effective estate planning. There are a lot more avenues to reduce estate taxes and this differs from person to person. Do not procrastinate your estate planning. Find out the facts from a qualified attorney and act accordingly so as to provide security to your heirs and peace of mind to you.
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