Estate Planning - Find Out About the Taxes and Other Expenses Now

When you're planning your will and making provisions for your final expenses, plus provisions for the distribution of any wealth you leave behind, understand how estate taxes work is an important part of the plan. If you fail to understand these laws, you may unintentionally leave your loved ones in a bind, facing complicated tax procedures, not to mention a hefty bill. For the sake of your heirs, plus your own peace of mind, take the time out now to education yourself about estate tax laws and make sure everyone involved with your state understands these laws and restrictions as well.

First, look at what exactly estate tax is. Estate tax applies to everything you own, plus all of your cash, securities, trusts, stocks, insurances, etc. Basically, everything you have of any financial value is considered to be part of your estate and is subject to estate tax. To calculate the value of your estate, an auditor will look at your financial worth, in the form of cash, stocks, insurance, and so on, and then will add that amount to the fair market value amount of all of your possessions. It is important to note that the fair market value is not necessarily the purchase price of the item; for instance, in the case of a car, the depreciated value of the car at the time of your death is the figure used, not what you paid for it. The sum of your financial wealth plus your possessions is called your Gross Estate.

When your Gross Estate amount has been calculates, deductions are then applied. Deductions can be for anything from leaving money behind to cover the mortgage payments of a surviving spouse to charitable donations to debt repayment. After these deductions have been made, the figure you are left with is called your Net Taxable Estate. With your Net Taxable Estate figure in mind, the government then considers cash gifts you have given to your heirs over the course of their lifetimes, beginning with gifts given in 1977 and then moving forward. If the total amount of the monetary gifts given to your heirs by you in life, plus the amount of the estate you have left to them in your death exceeds $2 million, then your estate is subject to estate tax.

Obviously, many people do not leave behind an estate of this size; in fact, only about 2% of Americans ever find themselves subjected to estate taxes. However, if there is even a possibility of your heirs getting hit with this hefty and complicated tax, you should begin to make provisions now to mitigate their tax burden. Work with your accountant to develop a rough figure for your total estate amount, and then see where you can find deductions. Include a charitable contribution in your will, or if your heirs will be selling some of your property, consider selling some of it now before your passing. If you own a business that will put your estate over the $2 million mark, make one of your heirs half owner with your in life, so that only half of the net worth of the business is considered in your estate.

When estate tax comes into the picture, large sums of money are being dealt with, and the tax laws surrounding this money are extremely complex. There is no guidebook that works for everyone; each case is unique. The most important thing you can do while estate planning is make sure you are working with a reputable and trustworthy financial advisor that can guide you, and then your heirs, through this process.

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