ESTATE TAX PLANNING

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When you meet with a Davidson Law Group estate planning attorney to discuss your estate planning needs, one of the topics that will come up is planning for estate taxes. Navigating and understanding the ins and outs of estate taxes can get a bit confusing. While your estate planning attorney will walk you through the specifics, we’ve broken down some general information about estate taxes so you have a basic understanding when you go into your consultation.

ESTATE TAX PLANNING

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When you meet with an estate planning attorney to discuss your estate planning needs, one of the topics that will come up is planning for estate taxes. Navigating and understanding the ins and outs of estate taxes can get a bit confusing. While your estate planning attorney will walk you through the specifics, we’ve broken down some general information about estate taxes so you have a basic understanding when you go into your consultation.

What is the Estate Tax?

According to the IRS, the federal estate tax is a tax on your right to transfer property when you pass away. The amount your gross estate had to total before the estate tax was triggered up until recently was less than one million dollars, so many Americans who had worked their whole lives to accumulate some wealth would instantly lose much of it when they pass away and are unable to transfer it to their children.

Fortunately, in 2012, the unified lifetime gift and estate tax exemption was increased to five million dollars and the tax rate continues to be at forty percent. The exemption number has also been adjusted for inflation for the coming years after 2012. So, unless you and your spouse have a gross estate of over $11,000,000 when you both pass away, at this point in time, estate tax is no longer a grave concern.

However, because of these and other legislative changes, your estate plan that was completed years ago might need some major revisions, and without them, your beneficiaries could be severely limited. With the right legal guidance from your estate planning attorney, you can avoid or minimize federal estate taxes and adjust your estate plan to current legislation, allowing you to leave more assets to your loved ones and other beneficiaries after your death.

What Is Portability? |

The American Tax Relief Act of 2012 (ATRA) was enacted into law in January of 2013. The ATRA permanently implemented an element from the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 called “portability.” Essentially, “portability” means that the spouse of the deceased can inherit the unused estate tax exemption and can then use it for gift or estate tax purposes.

While the concept of “portability” seems simple, there are a lot of details that need to be taken care of in a timely manner to take advantage of this new law. Be sure to discuss your options with your estate planning attorney while going through the estate planning process to ensure that you and your spouse do everything that needs to be done to qualify for the advantage of “portability.”

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| What is Roth IRA?

There is a very close relationship between financial planning, tax planning, and estate planning. A Roth IRA is a tool that is very helpful in all three areas, and it has a very large advantage over other retirement accounts. As long as the Roth IRA account has been open for more than five years, your heirs can use that inherited account without having to pay federal income tax. A Roth IRA is also unaffected by federal income tax rates increasing in the future. Also, on most traditional retirement accounts, you are required to start making Required Minimum Distributions (RMDs), which are taxable withdrawals, once you reach age 70½, and if you fail to do so, you can face heavy-handed penalties from the government. But, you can avoid all of this with a Roth IRA because it is not subject to the RMD rules, and you can leave the money undisturbed and growing in the account as long as you please; then, you can pass the money to your heirs tax-free. These are just a few of the benefits of a Roth IRA. You can speak with your estate planning attorney at the Davidson Law Group about whether or not a Roth IRA account would be beneficial for you.

What Else Should I Know?

You may be able to take advantage of salary reduction contributions by using a tax-favored employee benefits account. You should also consider using gifting strategies to transfer assets to your children or your favorite charity to reduce your taxes. Gifting strategies and salary reduction contributions should be discussed with your estate planning attorney during your free consultation.

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AN ESTATE PLANNING ATTORNEY AT DAVIDSON LAW GROUP

To create a comprehensive estate plan that can reduce or eliminate your tax liability, contact the Davidson Law Group today! To create a comprehensive estate plan that can reduce or eliminate your tax liability Schedule your free initial appointment with the Davidson Law Group today.