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Preparing for estate taxation when creating a high value estate plan

On Behalf of Reisinger Booth & Associates, P.C., L.L.O.  |  Jan 7, 2021  |  Estate Planning

An end-of-life estate represents the years of labor and hard work that an Omaha resident poured into their employment. It demonstrates their dedication to saving, investing, and growing their wealth for themselves, their loved ones, and their intended beneficiaries. Over time, end-of-life estates can expand and become highly valued in terms of their financial power.

A high value estate can be a benefit to a decedent’s family, but also a burden if it is not organized in such a way to mitigate the impact of estate taxation. Not all estate will be subject to estate taxation, but all estate planners should be aware of how this issue could impact them if their estate grow over time. No part of this post should be read as legal or financial advice, and all readers can choose to contact estate planning attorneys for support with their questions.

Understanding the federal estate tax

Just as incomes and properties can be taxed by the government, so too can estates be assessed taxes when decedents die. Presently, the estate taxation only impacts estates valued above $11.7 million for the 2021 calendar year. This threshold may seem exorbitant to some, but investments can grow over time to expand the value of estates to this and higher figures.

Consider two examples. First, a decedent passes away on January 1, 2021, with an estate valued at $5 million. No part of their estate is subject to estate taxation when it is distributed to beneficiaries because it is below the federal threshold. Other fees and taxes may apply depending on the form of assets subject to transfer.

Second, a decedent passes away on January 1, 2021, with an estate valued at $20 million. This estate will be subject to estate taxation but only for the amount that exceeds the stipulated threshold. Therefore, $8.3 million of the estate will be subject to taxation while $11.7 million will not.

Avoiding estate taxation with planning

Estate taxation can be extensive depending the rate that is applied to the estate. For this reason, many high value estate holders choose to use different strategies to avoid taxation when they die. Some options can include but are not limited to:

  • Reducing estate values with annual gifts to family members that do not exceed the gift tax threshold.
  • Maximizing marital transfers to balance wealth between spouses.
  • Giving to qualified charities.

There are more complex and client-specific tools that estate planning attorneys can suggest to their high value estate clients, and readers are reminded that this post is informational only in content. To begin the estate planning process, readers may choose to seek out counsel from attorneys who are prepared to manage the legal aspects of all value end-of-life estates.

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