Tax efficiency strategies are a must for high net worth individuals who are engaged in the process of estate planning in California. Fortunately, we don’t have a state level estate tax here, though there are a number of states that do have their own estate tax. This is a break, but the federal estate tax can do more than enough damage on its own.
You can pass along a certain amount of money to people on your inheritance list before the estate tax becomes a factor. This is why it is only relevant for individuals who have been particularly financially successful. At the present time in 2014, the amount of this exclusion is $5.34 million.
If you are engaged in the process of estate planning, you may look at this figure and go forward with the understanding that you are not going to be exposed to the estate tax because your assets don’t exceed this amount.
You should avoid this line of thinking because things can always change. Your own financial situation can improve significantly, and this is one type of change. It is also possible that tax laws can be changed via legislative mandate.
Estate planning should be viewed as an ongoing process. If you do the right thing and speak with an estate planning attorney early on during your working career to develop an estate plan, this will be based on a still picture of your life at that time. Over the years life changes invariably take place, and they often render your existing estate plan obsolete.
Marital Deduction
Now that we have provided some background on the federal estate tax in general, we would like to explain the unlimited marital deduction. You can bequeath $5.34 million to others before the estate tax kicks in. However, there is a caveat to this. You don’t have to use any of your estate tax exclusion to pass along assets to your spouse tax-free.
There is an unlimited marital deduction that you can utilize. You can leave an unlimited quantity of assets to your spouse free of the estate tax. This unlimited marital deduction also extends to the gift tax. You can give gifts totaling any amount of money to your spouse throughout your life without incurring any gift tax exposure.
To take advantage of the unlimited marital deduction, you must be married to an American citizen. Transfers of assets to non-citizen spouses are in fact subject to the estate tax.
