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List: Posted: 10/14/11
Inheritance taxes can end up costing your family a significant sum of money. This tax applies to any estate over $1 million and the tax rate is very high: up to 55 percent, in some cases.
Don't Be Fooled by the Repeal
In 2009, the estate tax was raised to exclude any estate below $3.5 million. In 2010, it was removed completely. This is not a permanent feature of the tax code, however, and, as of 2011, the estate tax is back in force and applies to any and all estates over $1 million.
For those leaving something to their loved ones, this can mean that the Government ends up getting the lion's share of the inheritance.
Protecting Your Inheritance
Most of these inheritances come from life insurance policies. But there are ways that you can protect them from the tax and it doesn't cost a lot to do it.
If you have a good attorney set up a trust, you can use that to pay the premiums on your life insurance policies. This means that the trust owns the life insurance policy and, therefore, it is not subject to the estate tax. The trust can be set up so that the survivors can draw from it without being subject to the tax. Moolanomy.com gives an example of how this scenario can unfold if the trust is not set up.
In the example, a family that was left $4 million by one parent ended up paying taxes on $3 million, to the tune of $1.5 million in total liabilities. The first $1 million was exempt from taxes. If they had set up a trust, $1 million could have been left to the estate, which would have eliminated tax liabilities. The remaining amount could have been in the trust and could have been drawn upon throughout the year without incurring the tax liabilities.
The Cost to You
Setting up a trust is a fairly easy process for a good attorney. Most of the time, you'll be looking at a bill of between $1,000 and $2,000 to complete the entire process. This means that, for a couple of thousand dollars, you could avoid paying millions of dollars in taxes from your estate. Done correctly, this leaves survivors with the money you intended them to have and avoids the scenario where the Government takes 50% of your life savings that you've worked so hard to accrue.
Financial planners can help you set this up for your family's inheritance. Consulting with them can help you determine how to move forward with setting up your insurance policies and the other logistics involved, and an attorney can do the heavy lifting of setting up the trust for you.
This means that you get the peace of mind of knowing that you can leave your family the inheritance you intended.
We look at your life through tax - and find ways to help. H&R Block is a global consumer tax services provider that prepares one in every seven U.S. tax returns. H&R Block is global leader in tax preparation services - we've prepared more than 700 million tax returns through retail locations and at-home, digital solutions since 1955. And with approximately 12,000 tax offices in all 50 states, as well as U.S. territories, military bases and abroad, we're always available to help you file your taxes. Find your local Ashburn tax office and schedule an appointment today.
We look at your life through tax - and find ways to help. H&R Block is a global consumer tax services provider that prepares one in every seven U.S. tax returns. H&R Block is global leader in tax preparation services - we've prepared more than 700 million tax returns through retail locations and at-home, digital solutions since 1955. And with approximately 12,000 tax offices in all 50 states, as well as U.S. territories, military bases and abroad, we're always available to help you file your taxes. Find your local Broadlands tax office and schedule an appointment today.
The material in this article is for informational purposes only. The views expressed in this article are those of the author and do not necessarily reflect the views or opinions of Local.com. See Additional Information