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Estate Tax Saving Strategies

Sep 4, 2007
The word 'Tax' raises brows as nobody loves to pay taxes; each one keeps finding ways to evade it. Estate taxes are the most frowned upon and avoided tax payment as it eats away a substantial amount of the estate if you don't initiate necessary steps. Estate tax planning should be done once you acquire a property above two million dollars, as this is the current limit up to which no estate tax is applicable. In case you avoid it then your beneficiaries or your heir may have to shell out 45 cents on every dollar of your estate value. There are chances that the excluding tax limit may increase by 2009.

Initially you may feel that your estate is not big enough for paying estate tax, but you may be surprised at the number of people, who own properties beyond the exemption limit even after considering life insurance death benefits, saving on 401(K) etc. If this is the situation you are facing, then you should ensure that your loved ones get the maximum from the property that you have saved for them. So implement some simple estate tax saving strategies and let them enjoy the fruit of your hard labor instead of it going into the government treasury.

. Life insurance proceeds are subjected to estate tax. Set up an irrevocable life insurance trust that can own your policies. This strategy saves you from paying estate tax. However if you wish to transfer any existing policy to the trust then you would be liable to pay estate tax for the next three years from the date of transfer.

. Marriage can also save you from tax deduction. You can transfer your estate to your spouse name and save on tax, this is called marital deduction and this leaves you free to leave up to $1 million for your grandchildren or to others without shelling out a single penny as gift tax. You can leave a legacy behind which can amount to $2 million by taking advantage of the tax exemption limit. The theory behind this tax code is that the wealth should be treated equally among married couples.

But this marital deduction is not considered permanent; it just postpones it. On the death of a spouse, the surviving spouse has to pay estate tax to the level that he or she retained the property until death.

. You are permitted to shell out an unlimited amount during your lifetime as education fees or for medical expenses not covered under insurance. This payment should be made directly to the institution. These payments are exempted from tax and it does not affect your $1million gift tax exemption. You can give an additional gift to your ward of around $12,000 towards books, or other expenses without paying tax. If your spouse is under the tax bracket then he or she is also eligible to get such privileges.

. Married couples, who pay taxes are entitled to estate tax exemption of about $2million individually, which amounts to about $4million! Even though in this case the property passes through tax exemption during the initial stages, later on the death of a spouse, one part becomes taxable.
About the Author
Sacramento CPA Firm Murray and Young offer Tax Representation by a former IRS auditor. For useful articles and tips by Sacramento Estate Tax Planners, please visit our website at http://www.april15.com.
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