The process of estate planning can be complicated for high net worth individuals. You have to be vigilant if you want to protect the assets that you have been able to accumulate, because the federal estate tax can have a very significant impact on your legacy.
There is a federal estate tax exclusion or credit. This is the amount that you can transfer before the estate tax would become applicable. For the rest of the 2014 calendar year, the estate tax exclusion is $5.34 million. An inflation adjustment will be applied in 2015 that will bring the amount of the exclusion up to $5.43 million.
You do not have to use any of your exclusion to leave a tax-free bequest to your spouse. There is an unlimited marital deduction, and this allows you to leave any amount of property to your spouse free of taxation, as long as your spouse is an American citizen.
The American citizenship requirement is in place to prevent a surviving spouse from returning to his or her country of citizenship with a tax-free inheritance. The Internal Revenue Service would not be in a position to collect anything after the death of the foreign citizen.
If you are married to a citizen of another country, you could obtain estate tax efficiency through the creation of a qualified domestic trust, commonly referred to as a QDOT trust. Your surviving spouse could receive income from the trust’s earnings throughout his or her life, and the distributions would not be subject to the estate tax.
The unlimited marital deduction does not disturb the tax man, because if it is used, the surviving spouse would be in possession of a taxable estate. As a result, the death tax would still loom large. Utilization of the unlimited marital deduction is not a true estate planning solution.
Free Estate Tax Report
We have provided a bit of information about the federal estate tax and the unlimited marital deduction in this blog post. If you would like to obtain more detailed information about the death tax, we have a valuable resource that you can access through this website.
Our firm has prepared a series of comprehensive estate planning and elder law reports. One report focuses on the federal estate tax.
To access your copy of the report, which is totally free of charge, please visit the Reports section of our web site.
Explore Estate Tax Efficiency Strategies
Action is required if you are faced with federal estate tax exposure. If you are proactive about the implementation of estate tax efficiency strategies, you can reduce your exposure and preserve your wealth for the benefit of your loved ones.
To explore your options, contact our office to request a consultation.