While there is no
federal estate tax this year (2010), the tax is scheduled to come back next
year, and apply to estates in excess of $1 million. To be clear, the amount of each estate that is
exempt from estate tax is scheduled to become $1 million in 2011 (down from $3.5
million in 2009, when the tax was last in effect). The tax on the balance is to rise to 55
percent in most cases (up from the 2009 rate of 45 percent). So now is the time to consider the various tax
strategies available.
Last week, in their
Retirement section, the New
York Times outlined a few of the tax strategies you might want to consider
now:
·
Buy Life
Insurance. You may want to buy a
short-term policy sufficient to cover your tax bill should the exemption revert
to only $1 million. The policy could be
canceled if Congress raises that amount to a level that would exempt your entire
estate. Caution: get legal advice on how to best purchase, own
and pay for this policy to ensure it does not become part of your taxable
estate.
·
Remarry.
If you are single and remarry, you will
gain the estate tax advantage available to all married couples: you can leave
an unlimited amount to your spouse estate-tax-free (provided they are an American
citizen).
·
Lend
Money. Consider lending money to
family members now, at an attractive (and yet tax-qualifying) rate of only 3.6
percent.
·
Finance
College Savings. Section 529
education savings plans are primarily a tool for financing education – your own
or a family member’s. Earnings in the account are exempt from federal tax,
provided the money is withdrawn to pay for qualified educational expenses. Caution:
Consult qualified legal counsel before implementing this strategy, especially
for grandchildren or great-grandchildren due to a quirk in the
generation-skipping transfer tax which could cause all of the trust assets to
be taxed when they are withdrawn.