Inheritance Tax Planning

Incorporate estate tax planning and even inheritance tax planning into the decision to pass along assets to others, and enjoy the peace of mind that comes from knowing that these funds are going to the persons or organizations which have been specified, rather than being lost to taxation. In the midst of a busy and productive lifestyle, few people want to take the time to consider estate planning. For one thing, this is an uncomfortable reminder that one is not immortal, at least physically. Yet Scripture affirms that "...it is appointed unto men once to die, but after this the judgment: So Christ was once offered to bear the sins of many..." (Hebrews 9:27-28). Another barrier is the fact that few people really understand the process of estate tax planning.

Obtaining professional help in this area is a wise move. However, a person can at least begin to consider some of the aspects of these financial issues on their own. Becoming aware of some issues involved with inheritance tax planning will give a person a basic grasp of issues which should later be confirmed by professional advisors. Planning may also have benefits in spiritual areas as well. In actually setting out lists of assets and planning for their disbursal, a person is led to consider what he or she has done so far with the things which God has given, and whether a change in life direction or priorities is in order.

There is a difference between inheritance tax planning and estate tax planning. An estate tax is one which is levied on an estate if the value exceeds an exclusion allowed by law. A spouse is not subject to this process, for a transfer of assets to a surviving spouse is not taxed. This right of spouses to leave assets to each other is known as the 'unlimited marital deduction'. If the surviving spouse dies, the heirs may be subject to estate taxes if the amount exceeds exclusion limits. Since these taxes can be considerable, it is best to plan ahead so that they can be reduced or eliminated. An inheritance tax is one imposed on those who inherit assets from a deceased person. The value of the property and the relationship to the deceased will determine the rate for inheritance taxes. It may help to remember that the estate tax is one which is imposed on the total value of a person's estate when he or she dies, while an inheritance tax is only imposed on the part of that estate which an heir receives.

At times, plans have been suggested to eliminate the estate tax entirely for a period of time. However, unless new laws are passed, such taxes continue to impose significant liability on estates with large assets. Millionaires are not as uncommon as they used to be, and many people urge that exclusion rates be raised to keep up with inflation. Another proposal seeks to set permanent tax levels, with future allowances for inflation. Others are not satisfied with this and seek ever higher exemptions. Some people see the costs involved in such exemptions as simply adding to the nation's deficit, while benefiting mostly the richest taxpayers. Others believe richer taxpayers should not be expected to fill the deficit hole with the fruits of their labors.

Where does this leave those involved in inheritance tax planning or estate planning? First, consider personal assets. These include a home, investments, pensions, life insurance, and annuities. If assets are worth less than two million dollars, future changes in regulations may not affect much, for exclusions would probably be at least up to that level. Regardless, it is wise to do everything possible to reduce such taxes. Some strategies used by others include creating a Credit Shelter Trust, in which assets up to two million dollars can be sheltered so that a spouse will not need to pay taxes on this portion of the estate.

Gifting is another option for estate tax planning. Twelve thousand dollars a year may be given to an individual without incurring a liability. This gifting is done while the giver is still alive, of course, and may be repeated annually to decrease an estate's value. Also, life insurance policies may be provided so that heirs will not have to deal with any remaining taxes. These policies would need to be put in an adult heir's name, or may be administered through a life insurance trust which the giver sets up.

Blended families have their own inheritance issues to work out. For example, how can one be sure that none of a couple's children are left out of inheritances due to a step-parent's future control of financial matters? Even if relationships are amiable now, financial matters and stressful situations can bring out the worst in some people. For this reason, it is wise to have an experienced lawyer advise one about inheritance tax planning scenarios which may have been overlooked. Even in traditional, uncontested family situations, it is best to have a lawyer to deal with the filing of necessary papers which transfer control of assets and provide for payment of any necessary taxes or fees. Needless to say, the time for dealing with the many matters involved in distributing a person's assets is right now, while he or she is still alive. Read up on these matters, then engage the services of a competent attorney to help make sure that assets are distributed to the people, charities and organizations which have been chosen.

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