Wednesday, June 02, 2010

What is Estate Planning- Gift and Estate Tax Planning

Almost all of our Kansas City area clients ask us, what is Estate Planning?

We have been discussing the areas of concern for families and business owners regarding estate planning, which are as follows:

1. Lifetime control over financial and health care decisions
2. Planning for the cost-effective and expedient transfer of wealth at death
3. Family maintenance and protective planning
4. Business succession planning
5. Charitable planning
6. Gift and estate tax planning
7. Legacy planning
8. Elder law issues

Last week Garrett reviewed area 5 – Charitable Planning, today I will cover area 6 – Gift and Estate Tax Planning.

Gift and Estate Tax Planning

The gift and estate tax system essentially penalizes those who are too successful at accumulating wealth.  These taxes seek to limit the amount your clients can give to others- either during their lifetime or at death.  Collectively, “gift and estate taxes” are often referred to as “transfer taxes” because they impose a tax on the transfer of property from one person to another.

The tax is computed with reference to the value of the property that is considered to be in your gross estate at death, and the value of taxable gifts that you made during your lifetime.  Generally, at the federal level, if the total of lifetime taxable gifts and the value of the property owned as of the date of your death exceeds a certain exemption level (it was $3.5 million in 2009, no estate taxes in 2010, and set to be $1 million in 2011- see previous Blawg entries for detailed discussion of uncertainty of federal estate tax), a transfer tax liability may be due on amounts that exceed the exemption amount.  If this tax applies, it will be steep: the maximum tax rate in 2009 was 45% and set to be 55% in 2011.  (Note:  Neither Kansas or Missouri have an estate tax)

There are many deductions and strategies available to help reduce or even eliminate the transfer tax liability.  If you would like more information regarding such deductions or strategies, or have questions regarding this week's Blawg, please do not hesitate to contact us.

Please keep the questions and comments coming.

Jason Salinardi

BridgeBuilder- Plans for Life