Those that don't have a lot of money wrapped up in their estate might already know that they are immune from federal estate tax. After all, a new law states that only men and women that die with $5 million in assets will be subjected to an estate tax on the federal level. This number is actually $5.25 million for 2013.
While some of you might have dodged federal estate taxes, you would do yourself a world of good by forming asset protection to prepare for state estate and inheritance taxes that might be on the books where you live.
State estate and inheritance taxes are not something everyone accounts for. If you do not account for this tax, the money that was left behind for children or other heirs could be ravaged by the state government. This is a reality for most as 21 states throughout the country, including Washington D.C., have estate and inheritance taxes.
There are some measures you can take to avoid state estate taxes, though.
Moving to another state where these taxes are not on the books is one way. Luckily for Florida residents, state estate taxes are not an issue, which is why many wealthy out-of-state residents try vigorously to establish Florida as their primary residence.
For those that don't want to pick up their lives and move, there are other alternative ways to avoid state estate taxes. While more complex avenues like credit shelters and a Spousal Lifetime Access Trust can help, gifting is another very simple way. Each person has a $5 million lifetime gift allowance. On top of that, they can give $14,000 per year to as many individuals as they want without facing gift taxes.
Failing to account for state estate taxes can prove detrimental. Luckily, right now, Floridians do not have to jump this estate planning hurdle.
Source: Forbes, "Four Ways To Beat State Death Taxes," Ashlea Ebeling, Jan. 28, 2013