Some people are insensitive to the damage that can be caused by the estate tax because they are not exposed. The estate tax exclusion is $5.25 million at the current time. If the value of your estate does not exceed this amount you may not give the estate tax much thought.
However, have you ever daydreamed about winning a big lottery prize? A winning Powerball ticket was sold in Florida recently that was worth hundreds of millions of dollars. If you were the winner you would probably see the estate tax in an entirely different light.
First of all, when you hear about a lottery jackpot you have to understand the fact that this figure that is being dangled is the amount of the jackpot before taxes are imposed. The Powerball lottery will hold back 25% of the winnings if you take the lump sum to cover income taxes.
If you are talking about a jackpot worth say $400 million, that’s $100 million right off the top that goes to the taxman.
However, the potential taxation does not stop there even though it may seem as though $100 million should be sufficient.
As soon as you take possession of the funds they will become part of your estate. They are your assets. The estate tax exclusion is only $5.25 million as we stated previously, and the maximum rate is 40%.
If you were to get into a fatal car wreck after depositing your $300 million virtually all of it would be subject to a 40% federal death levy.
In the event that you defy the odds and join the ranks of instant multimillionaires you would do well to discuss estate tax efficiency strategies with an estate planning attorney sooner rather than later.
Larry Parman
Author, President and Founding Attorney
Parman & Easterday
- Why Do You Need a Lawyer to Plan Your Estate? - September 15, 2022
- Lessons Learned From the Estate of Zappos Multimillionaire Tony Hsieh - September 13, 2022
- Are You Aware of the VA Aid and Attendance Pension? - September 8, 2022
