The Estate Credit: How Can You Maximize Yours?
The term "estate credit" does not refer to he amount of money your executor will be able to borrow in the name of your estate. An estate credit is also known as the unified estate and gift tax credit, and if you can leave one to your heirs, you'll be doing them a tremendous favor. An estate credit is the total amount in your estate on which no federal estate taxes must be paid. The amount of your estate credit, under the current US estate tax laws, the rate at which your estate will be taxed and the exemptions it will be allowed due to gifts you made during your life time, as well as the gross value of your estate at the time you die are all determined by the IRS schedule 706. The estate credit will first be applied to gifts you made in your lifetime and then to your gross estate.
If you're an American, in 2001 you automatically received an estate credit against future federal estate taxes in the amount of $220,250. What this means in simple terms is that any estate of up to $675,000 was exempt for Federal taxes. In the case of married couples, the estate credit means they could leave $1,350,000 to their heirs free of estate taxes. And as of 2009, the estate credit will cover an estate of up to $3,500,000. The estate credit is called a unified credit because it covers both gift and estate taxes so that neither an estate nor gift tax is due on the first $780,000 of your estate and lifetime gift transfers when you die. You can, during your life, give anyone up to $12,000 per year without that money being subject to a tax. But if you decide to give someone $50,000 in a single year, you can either pay the tax on the additional $38,000 or not pay it and have your $780,000 estate credit reduced by the amount of taxes on the $38,000. But if you report the $38,000 open your tax return and pay it, the amount of the gift will be included in your estate, the amount of your estate tax will be refigured and if your estate ends up owing taxes, the amount of gift tax you will be credited towards them. It seems fairly obvious that anyone whose estate is large enough to surpass the current threshold for estate taxes would be wise to pay for the services of an estate planning attorney. There are many ways to see that your assets are distributed outside of your estate. You can purchase life insurance policies and name each of your heirs as a beneficiary, and the money they receive will not be included in your estate. You can set up a trust containing the bulk of your assets, and it will not be a part of you estate. Or you can begin to distribute your assets in amount of up to $12,000, or $24,000 for you and your spouse, per person, to each of your heirs and that money, and you estate credit, will be exempt from the Gift Tax. So why not investigate the best ways to protect your estate credit by starting your estate planning as soon as possible? |
