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How To of Estate Tax Planning

Anyone who owns property needs an estate plan. Most people think they don't own much property, but once people start adding their house, cars, cash, stocks, bonds, mutual funds, retirement plans, life insurance proceeds and personal effects, it doesn't take long to get to a sizeable amount. Once the value of the property owned passes the 1999 exclusion amount of$650,000, any excess value over that amount is taxable.

The beginning rate for federal taxes on an estate is 41%. The exclusion amount will gradually increase to $1,000,000 by 2006. Let's look at Joe, he is 50 and divorced. He has a life insurance policy of$350,000. He has a car that is worth $25,000 and a house worth $200,000,with a $100,000 mortgage. His household items and stamp collection is worth $25,000. At this time he has $375,000 in his retirement account and $75,000 in cash, stock, bonds and mutual funds. If Joe died today, he would leave an estate of $950,000 and his estate would owe the federal government $123,000. Because of the high value of real estate and with so many dual-income families, many people who consider themselves of modest means may actually be subject to federal estate taxes at their death.

Estate planning is an ongoing process. For a young person or couple with limited assets, it may simply consist of having a will. When a couple has children, the couple should consider designating a guardian and determining how their children will be provided for in the event of unexpected death or incapacity. Married couples may also pass all property using to the surviving spouse in their will. This allows them to use the marital deduction allowed for the estate. This postpones estate taxes until the second spouse has died. Upon divorce, your will automatically becomes invalid in Georgia. You will need to redo your will and estate tax planning to account for the new situation.

As your assets reach the taxable amount for federal estate tax purposes, there are planning strategies that will help you minimize the estate tax burden and allow you to direct how and to whom your property will be distributed at your death. These include using the marital deductions, changing the ownership of property and setting up trusts. If you have no estate plan at all, the state, not you, will decide how your property is to be distributed at your death with regards to your family's needs.

Start your estate planning today by making sure you have a will and taking an inventory of your estate. You may be surprised at how much you really do have.