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How much will my estate owe in federal taxes?

Due to the way federal estate tax exemptions are set up, it's unlikely that your estate will owe any taxes to the Internal Revenue Service at the time it is administered. A report from the Joint Committee on Taxation indicates that only around two of every 1,000 estates in the country end up owing estate taxes.

The reason for this fact is that the federal government does not charge estate taxes unless an individual's total estate assets are worth $5.43 million or more. The estate of a married couple must be worth twice that to incur estate taxes.

Even if you are one of the small percentage of individuals with an estate that could surpass the exemption threshold, your estate may still be able to avoid taxes. A number of loopholes and estate legal structures let you structure assets in a way to avoid large tax burdens. Trusts are a popular and legal method of structuring assets to avoid federal estate taxes. Trusts can also help you avoid state taxes and safeguard assets against creditors or misappropriation by heirs.

If your estate does end up with a tax burden, it's often less than a sixth of the overall estate value. While that seems like a small percentage, when you're looking at millions in assets, the taxes might be millions as well. While heirs will still be left with money, many people want to pass on as much of their hard-earned wealth as possible, which is another reason to consider strong estate planning now. One benefit is that you can reduce the tax burden on your heirs and loved ones.

Source: Center on Budget and Policy Priorities, "Ten Facts You Should Know About the Federal Estate Tax," Chye-Ching Huang and Brandon DeBolt, accessed April. 22, 2015

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