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New Details on the Estate Tax Change Discussion

J04409881-978x400The estate tax draws heated debate between advocates and opponents, with some referring to the levy as a "death tax," while others argue that the estate tax is a key vehicle in fighting economic inequality over the generations. Regardless of what you think of the estate tax, estate tax rates are still extremely high compared to many other types of taxes. That can be devastating to some families, but it also creates a big incentive to plan ways to avoid it. Let's take a look at the estate tax rates for 2015 and briefly discuss some tactics you can use to reduce your estate tax bill.

The Fox Business article, “2015 Estate Tax Rates: How Much Will You Pay?” notes that the rate structure for the estate tax has remained virtually unchanged since 2013. There are various rates, in a somewhat complicated structure, involving 13 different brackets:

Amount of Taxable Estate

Tax Bracket

$0-$10,000

18%

$10,001-$20,000

20%

$20,001-$40,000

22%

$40,001-$60,000

24%

$60,001-$80,000

26%

$80,001-$100,000

28%

$100,001-$150,000

30%

$150,001-$250,000

32%

$250,001-$500,000

34%

$500,001-$750,000

37%

$750,001-$1 million

39%

Over $1 million

40%

Source: IRS

Before you do any number crunching, remember that the federal government has an estate tax exemption for all estates more than $5.43 million (in 2015). The “lifetime exemption amount” is the cut-off mark for how much wealth each person can pass to their heirs without owing any estate tax.

The article explains that the exemption is different than a standard deduction. What you do is look at all your taxable estate assets and knock out the first $5.43 million. If you have more than that, the estate tax will be at the maximum rate of 40% on the portion of the estate that’s above the $5.43 million threshold.

An estate planning attorney can help you with some ways to reduce or even eliminate your estate tax liability. This can include gifts during your lifetime to reduce your estate assets at your death. The law says that you can give an individual up to $14,000 annually without having to pay any gift tax. If you give more than that amount, you'll start using up your lifetime exemption. You don’t want that!

There are also many more complicated methods of giving money to potential heirs during your lifetime that can reduce your eventual estate tax bill. Talk with your estate planning attorney about these more complex strategies and leave more money for your heirs and less for taxes.

For more information about estate planning, please visit my estate planning website.

Reference: Fox Business (July 16, 2015) “2015 Estate Tax Rates: How Much Will You Pay?”

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