With a new administration in the government, there are always changes. When it comes to estate taxes, changes in the law can impact your plans for the future and your beneficiaries. It's known that President Trump has suggested eliminating the federal estate tax, but does that really affect you?
Face it — nobody likes to pay taxes. Neither will your heirs after you die. But while you likely won't be able to eliminate all taxes on your estate, there are perfectly legal ways to reduce them.
The federal estate tax is a cut of estate value that goes to the Internal Revenue Service. When the federal estate tax comes into play, it can take a hefty bite out of the value of an estate. Luckily for most people, thresholds on this tax and numerous other factors mean that only a small percentage of people end up dealing with it, and very few estates that include small family business or farms end up on the hook for estate taxes.
At the end of 2016, New Jersey lawmakers passed a bill that would raise the state estate tax exemption by a hefty amount. The exemption prior to Jan. 2, 2018 is only $675,000. While over half a million dollars sounds like a lot to most families, when you add in the value of homes, retirement investments and other assets, it's easier to hit that total than you might think. In 2014, over 3,000 estate tax returns were filed, for example.
As you start to accrue any amount of wealth, you might become concerned about estate taxes. There's a myth out there that the government will take a huge chunk of your estate if you have anything to pass on to your heirs, so it's better to spend it all on yourself and your family now. That's actually not true, due in part to the fact that you can take advantage of numerous estate tax exemptions.
Because same-sex marriage is recognized by the federal government, same-sex couples now have access to some estate tax benefits that traditional couples have enjoyed for years. These benefits can help reduce the federal tax burden related to both estates and gift-giving.
The alternate valuation date is one of two methods for calculating the value of an estate for the purpose of determining tax liabilities. Usually, the estate is valued based on the how much assets are worth on the fair market on the day the person died, but if the heirs can inherit more by reducing tax burdens, they might be allowed to use the alternate valuation date.
When it comes to estate planning, it's likely that you have a solid idea of what you are trying to accomplish.
When it comes to estate taxes, you should always have one thing on your mind — implementing strategies to help reduce or eliminate the tax.
Many people understand the benefits of creating an estate plan. However, there are those who never take into consideration the details associated with tax planning. Remember one thing: Both of these details should be important to you now, as they will impact your loved ones in the future.