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April 08, 2008


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From the sounds of it, I don't think you are anywhere near having to worry about estate taxes. The upcoming election will have exactly zero affect on your estate tax liabilities (assuming you don't get hit by a truck and have a large estate today). You should be more concerned with the election cycles in 30-50 years from now. Any guesses how that will play out?

This is all good advice, although for anyone who is actually worried about being subject to the estate tax there is no substitute for meeting with an estate planning attorney.

As an FYI: The estate tax exemption is $2 mil per person this year, jumping to $3.5 mil in 2009, but then it reverts back to the pre-2001 law, which makes it likely that congress will implement a new exemption amount beginning in 2010. The assumption right now is that it will end up somewhere between $3.5 and $5 million, although nothing is settled yet. (There is a general consensus that the estate tax will not be repealed, regardless of who wins in November.)

There are several tax efficient ways to transfer wealth to your descendents beyond the annual gifting approach (although that is a great start). And remember, if a married couple opts to "split" the gifts (by checking a box on a gift tax return), the couple can give $24,000 to an individual each year, with no limit on the number of individuals who receive such a gift. So if you have 2 kids, who are married, and they each have 2 kids, you can transfer $144,000 out of your estate each year, assuming you want to give gifts to all 6 of those people. I agree that gifts such as these (esp. for minors) are better made in a trust. Again, meet with a good estate planning attorney! (NEVER ever follow one of those "write your own estate plan!" books. Financial disasters waiting to happen.)

Great post! I like the idea of giving now, rather than waiting until you die. You can see the results of your labor...

You are correct Amy...Married folks can give $24K.

There are so many techniques to lower your estate tax burden it is amazing...and what's more amazing is the number of folks who don't pay an estate attorney $2K (or whatever it costs) because it is "too much" and then pass $500K of tax burden onto their children. Or worse yet, die without a will with millions...Seen it before...

I wish one day to need an estate plan to provide "something" to my children and grand children. Having just that extra "something" starting out is such a huge deal today and in the future it will probably be that much more important, especially if the children are raised correctly...

I read the other day that the baby boomer hold 75% of the wealth in America. In the next 25 years, more money will be transfered than at any time before. This is perhaps a very good time to become an estate attorney.

One note on giving now: This may work for cash, but not land. If you give the land to someone before you die, their basis is what you paid for it. If you leave it to them, the basis is its value when you died. And basis is what's used to determine profit when selling the land. So if you bought some land 20 years ago for $25k and you give it to your nephew, who then sells it for $100k, he pays taxes on the $75k difference. If however, you leave him the land in your will and it's worth $95k at the time of your death, and he sells it for the same $100k, he only pays tax on the $5k.

There's a potential problem you overlooked with giving the inheritance while still alive. If a nursing home stay occurs and a claim is filed to Medicare, they will not pay it unless all assets have been exhausted. And they'll also look back 3-5 years, and any large 'gifts' that occurred are potentially at risk to be called back to cover the medical costs. This is to avoid people 'protecting assets' by giving away everything away, which was a fairly abused loophole before it was closed. Unfortunately, it also means that any large gifts could be at risk of being 'taken away' by Medicare to cover nursing home costs.

Look up 'Medicare look-back' to find out more. Just something to think about.


When you mentioned a 500k tax burden, is that the tax due on a larger inherited amount? Or did you mean there can be a tax on a 500k inheritance?

Michael, I think it's 5 years. A good plan would be to have long-term care insurance. I've heard Dave Ramsey say that anyone over 60 should have it because that's when your more likely to need it. If someones in the position of being able to distribute large sums they can probably afford it. As you said Medicare only pays after assets have been exhausted. Long term care insurance might end up also perserving more of your estate in that case. It pays rather than eating up the estate. No I don't sell insurance but it makes sense to me.

rwh there's no tax on 500k, the line is much higher

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