Assets Less than $10,000,000

Estate planning is particularly important for people with a greater quantity of assets. This is so because, in 2011, anything above the $1,000,000 exemption is subject to a federal estate tax of up to 55 percent. While there has been talk of the exemption changing, this is up to Congress to decide, and we have yet to see any serious movement to do so. Whatever Congress ultimately decides to do with this exemption, foresight and planning can help people avoid this tax and preserve their assets. For instance, married couples that establish a type of living trust, known as an A-B Trust, may effectively double their estate tax exemption. What happens is that the couple funds a trust that is designed to split into two trusts upon the death of either spouse. When the trust splits, the amount of the exemption ($1,000,000) remains in the initial trust, and the remaining funds go to a second trust for the surviving spouse’s benefit. Then, when the second spouse passes away, the second trust is also eligible for the exemption, thereby allowing the couple to decrease their estate tax liability dramatically.

Another tool commonly used for larger estates is the life insurance trust. Ordinarily, proceeds from a life insurance policy are taxable under the federal estate tax. If the policy owner transfers the policy to a life insurance trust, however, the trust acquires ownership of the proceeds, and they are thus exempt from the estate tax. Life insurance trusts have certain drawbacks, such as a loss of control and liquidity, but these costs are often worth the benefit of keeping assets free from the estate tax. An Arizona estate planning attorney can help individuals fund a life insurance trust with an optimal amount of assets. This way they save on estate taxes, but also use other strategies that help them to maintain a degree of flexibility.

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