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Can a will reduce estate taxes?
A Will alone usually doesn’t have much effect on estate taxes. There are several kinds of taxes that might apply to an estate or inheritance. There’s the Federal Estate Tax, which applies to estates over $2 million in 2008 and over $3.5 million in 2009. In 2010 the tax is repealed and then reinstated in 2011 for estates over $1 million. Congress could change this, and many experts expect it to do so. This means it’s very difficult at the moment to predict when this federal tax will apply to an estate.
There are also now estate taxes at the state level, and you have to know your state’s requirements and the size of estate a state tax will apply to. A few states also have inheritance tax. This is usually applied to all the property in an estate, no matter what size the estate is, and also to all real property located in the state, even if the Will is being probated somewhere else.
The estate planning techniques used to avoid estate taxes usually involve transferring property to Trusts so that the final estate is too small to pay estate taxes. A Will doesn’t help reduce the size of the estate, so it doesn’t reduce estate taxes. A Will generally only saves on the expenses of probate (the legal process for transferring title of property from the deceased to the beneficiaries), because probating an estate with a Will is usually less expensive than probating an estate without a Will. A Will might also save money by using state statutory language that will allow your estate to be exempted from probate.
If you have questions about estate taxes, you should consult an attorney and make sure your estate plan is updated as the laws change. |
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What is probate?
When should a will be prepared and signed?
Why not wait until I am very ill?
Should I write my own will?
What is the difference between a will and a trust?
How long is a will valid?
Can I disinherit my spouse and/or my child(ren)?
What does a will usually contain?
Can a will reduce estate taxes?
Does a will change named beneficiaries for life insurance policies, pensions, and similar accounts?
My accountant told me not to leave money to my grandchildren because the tax would be too high. Was he correct?
How much should it cost me to have a lawyer prepare a will or a trust for me?
What is a will, and who should have one?
Do we have to go through probate if there is a will?
Does Marriage Affect My Will?
Would a Trust Be Better Than a Will?
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