As people look back on their lives, they will realize that they've worked hard for what they have. They spent years going to school, climbing the ladder, setting up a successful business, or some combination of all of these. They have provided a good life for themselves and their family. They would like to pass on what they have to the people they love and care about.
Unfortunately, many people overlook the fact that they can't simply pass down what they have to their heirs. There is a piece of the tax code called the estate tax that stands to take a large chunk out of an estate unless people plan their inheritance carefully.
The Estate Tax is Triggered Upon Death
Many people assume that their family will simply receive their assets when they pass away; however, how these assets are passed down will ultimately determine what is left. For individuals with an estate worth over $5.45 million, every dollar amount over this $5.45 million is taxed at 50 percent. Assets that are included in the value of an estate include cars, houses, investment portfolios, jewelry, clothing, electronics, and everything else that has some intrinsic value to it. Because most of these items can't be split down the middle, there is a substantial amount of cost involved in valuing the items and calculating the taxes. Between this and any final expenses, families could lose a large amount of their estate by the time the process has concluded.
The Estate Tax is Different from the Final Income Tax
It is not unusual for people to confuse the final income tax with the estate tax. The final income tax is the income tax that is paid on any income that is earned during the year of the person's death. This income is treated just like any other income that was made during any other year of life. Once this is paid off, the estate tax calculation will begin on what's left of the estate.
Life Insurance is Included in the Estate Tax
Many people have lucrative life insurance policies that were taken out to ensure the financial stability of the family should the person pass away. Now, that insurance policy is going to help cover many of the final expenses and ensure the family is supported. Unfortunately, even life insurance benefits are included in the valuation of an estate despite the policy being paid out when the person passes. With careful planning, there may be ways to remove a life insurance policy from the value of an estate.
Anyone who would like to pass down their property and finances to their heirs without losing 50 percent or more of their assets to the estate tax may benefit significantly from contacting an experienced estate planning attorney. A professional can help to ensure that as much of your estate as possible passes directly to your intended beneficiaries.