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.
For example, the federal estate tax threshold doesn't even start until over $5 million of assets are in play, which isn't something many people never even have to worry about. While there is a 40 percent estate tax at the highest levels, unless you're breaking the threshold first, you don't have to pay anything.
If you're leaving amounts to your spouse, you typically don't have to pay federal income tax on a large portion of that either, though how much you leave could impact how much threshold exemption your spouse ends up with for their own estate. When figuring out the tax impact on your estate, it's a good idea to work with a professional estate tax lawyer to understand all these little details.
Other ways you might be able to reduce estate taxes or skirt them slightly is via gift-giving and trust planning. These are areas were the line can be hard to see, though, so make sure you work with a professional and know exactly what you're doing, otherwise, you could create undue tax burdens for yourself, your estate or your heirs. Also, you always need to know whether local or state taxes will come into play, which is another reason to work with a knowledgeable professional.