To determine whether estate taxes are of concern, we take an estate inventory of everything that was within the control of the person that died. This includes, among other things, life insurance, real estate, bank accounts, cash, personal items, cars, stock, mutual funds, retirement accounts, and business assets. If the date of death value of these assets is above the then-available Applicable Exclusion Amount, an estate tax will be due.
The analysis of whether estate taxes should be addressed as part of an individual's estate plan is the same as the analysis that we use after a person's death. We start with a comprehensive inventory. The value of an individual's estate determines whether planning to reduce estate taxes is necessary. When we take a complete inventory of a person's estate, including the value of real estate, life insurance, and retirement funds, we have the answer. Those individuals with estates that are below the threshold can concentrate on probate avoidance, asset distribution, and the issues raised in Sections I, II, and III. Those individuals above the threshold risk estate taxation. They have to decide whether they wish to plan to reduce or eliminate the tax or whether they wish to have their beneficiaries pay the tax.
Estate Tax Planning also differs depending on marital status. The most common type of estate tax planning is available only for married couples. This planning, called Credit Shelter Trust planning or By-Pass Trust planning, involves taking advantage of the Applicable Exclusion Amount to the greatest possible extent at the death of both spouses.
One final note on estate taxes. It is important to be ever watchful for changes in financial circumstances. Examples include elections made through employer sponsored benefit plans, changes in property values, additional life insurance, or even a modest inheritance. Even a seemingly insignificant event can change your estate tax analysis considerably.
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