One of the most common misconceptions that circulates regarding estate planning is that the estate tax is only imposed on people who are extremely wealthy. On the federal level, the estate tax exclusion as of this writing is $5 million. So if your estate is worth less than this it is not presently exposed the federal estate tax. However, in New Jersey we have a state estate tax as well and as an inheritance tax. The state estate tax exemption in the Garden State is just $675,000.
Under current laws the federal estate tax exclusion is set to be reduced to $1 million at the end of 2012. There are more than 8 million households in the United States with total financial resources exceeding this amount. People who have worked hard to accumulate say $2 million over half a century may not consider themselves to be wealthy individuals born with silver spoons in their mouths. Yet, when 2013 rolls around and the rate of the estate tax rises to 55% and the exclusion is reduced to $1 million that $2 million estate would be shaved down by an incredible $550,000.
The above debunks the notion that only the uber-rich need concern themselves with the ravages of the estate tax. On the positive side, there are things that you can do to reduce or even eradicate your estate tax liability and one of them would be the creation of targeted trusts. There are a number of different types of trusts that can be utilized to provide estate tax efficiency and the appropriate combination will vary on a case-by-case basis.
For example, generation-skipping trusts can help you avoid multi-generational asset erosion. Personal residence trusts can remove the value of your home from your estate and greatly reduce its taxable value when the gift tax is applied. Grantor retained annuity trusts can enable tax-free asset transfers under certain circumstances.
To learn more about how targeted trusts can help you gain estate tax efficiency take action right now and arrange for consultation with a licensed, savvy legacy planning attorney.