A common component of the estate planning process is to try to limit an individual’s estate tax exposure. Estate tax planning strategies are typically employed by those of higher wealth and income brackets, depending on the state in which the person resides. Some states, like Texas for example, do not have estate taxes. Also, as of 2014, the federal estate tax does not go into effect unless an estate exceeds $5.34 million in value.
According to Forbes magazine, sufficient political support might currently exist in Congress to completely abolish the federal estate tax altogether. Indeed, the “Death Tax Repeal of 2013,” which was brought forward by a Texas congressman, only needs to have 218 votes to pass. Recently, four more co-sponsors signed up to support the bill, which means that a total of 221 congressmen currently support the law.
Some might argue that a federal death tax repeal is merely a formality at this point. Indeed, for most Americans, the federal death tax does not affect them because their estates are not very large. Also, for the wealthier segments of the population, they have the means to employ various strategies — like the creation of financial trusts — in order to sidestep their exposure to death taxes.
Until the federal inheritance tax is officially repealed, though, it is best for Texas residents with estates exceeding $5.34 million to be safe rather than sorry. For those whose estates exceed this amount, various estate tax planning options exist to help protect one’s heirs from needing to pay inheritance and estate taxes. These strategies may include the creation of a special trust, or gifting one’s inheritance to heirs prior to one’s death and other highly effective solutions.
Source: The Washington Times, “Support for repealing death tax grows in the House“, Seth Mclaughlin, June 18, 2014