Tips To Manage Your Estate And Tax PlanningAmericans need to be aware of gift taxes and estate taxes that can reduce the amounts they will actually be able to transfer to their heirs and children on their deaths. The awareness will help them better manage their estate and tax planning associated with it. Providing a better lifestyle for your family is what drives you towards an estate plan in the first place and shows that you care for your family. Estate and the associated tax planning involve some important tips. These are described below. Giving today to your loved one a gift is a better strategy than maximizing the value of your estate assets for transfer later. This is because provisions in the gift tax laws provide tax-free gifts to your children or grandchildren up to a limit of $12,000 per child per year. Further, this provision also avoids inheritance tax to the above extent of the gift received from parents or grandparents. Above the limit of $12,000, a beneficiary will have to pay tax on the amount in excess at rates that can rise as high as 46%. An alternative also is available to you if you do not want that the beneficiary of your gift is not liable for taxation for amounts in excess of the $12,000 limit. Following the alternative translates into you foregoing your estate tax credit by the amount in excess of $12,000 per beneficiary. The maximum estate tax credit that the IRS allows you is $2 million per year up to the year 2009. The estate tax credit is a deduction allowed towards calculation of the net estate tax to be payable to the IRS on your death. Gifting away too much reduces your estate value proportionally, so it is important to gift only that much which can maximize the deductions from taxes and no more. It will be imperative to consult your estate advisor before you consider gifting too much to your loved ones. You should also consider setting up a living trust for management of your estate assets. This facility helps you to avoid the probate costs associated with a will, retain privacy, and helps transfer the assets to designated beneficiaries in your lifetime. A living trust also helps maximize the unified credits available to you and your wife separately as deductions against gift tax and estate tax. The amount of gift tax credit ceiling currently available is $1 million per year till the year 2009. This involves factoring in estate taxes into your overall estate plan. Peak estate tax rates are 46%. It is important to note that estate tax advantages are inherent in going in for devices such as municipal bonds and cash-rich life insurance. These vehicles can help reduce your estate tax. You need to talk to the nearest agent who can provide you with information on such devices. Talking with your loved ones about your objectives of estate and tax planning can also help you divide your estate among them better. |