Law Outside the Box

In the world of estate planning law, there has been much buzz in recent months regarding what the estate tax threshold will become.  There has been much debate in Congress regarding what amount will be subject to estate taxes at rates of around 45%.  To demonstrate the issue, here is a standard situation.

Let’s assume you are single.

Here are your assets and debts:

Home: $200,000

401K: $40,000

IRA: $60,000

Life Insurance Policy for the benefit of your son: $1,000,000

Mortgage on your home: ($100,000)

For calculating estate taxes, your net worth is $1,200,000.

If the estate tax threshold settles in at $1,000,000 starting in 2011, $200,000 of your estate is subject to state and federal estate tax.  The bite out of that could be as much as $100,000 back to the government.  When you factor in the value of life insurance, it isn’t hard to reach the $1,000,000 threshold in many cases.  For a single person, there are a number of strategies to reduce this potential estat tax effect.  For a couple, likewise, there are additional options as well.

I would strongly recommend reading this article in the USA Today to learn more.  It has some very interesting information about where estate taxes might be headed.