Financial success is a wonderful thing, but you have to understand the fact that it is not necessarily easy to keep that wealth within the family. When you hear that statement, you may first conjure images of inheritance mismanagement. This does happen, but in this post we would like to highlight the impact that the federal estate tax can have on your financial legacy.

Let’s say that you leave your assets to your children and they are all fantastic money managers. The asset transfers may be subject to the federal estate tax. Using the figure that is in place for 2013, anything that you pass along that exceeds $5.25 million would be subject to the estate tax unless you employ estate tax efficiency strategies.

For the purposes of this hypothetical example your children never spend any of their inheritances. In fact, each of them adds to the family wealth. Once again, the estate tax looms large as this wealth is being passed on to your grandchildren. This can go on and on and on for generations.

There are things that can be done to slow the erosion of your wealth, and we would be glad to discuss your options with you at any time. You can contact our firm electronically through this link: Free Oklahoma Wealth Preservation Consultation.

Married Couples: What You Need to Know

When we are talking about the $5.25 million exclusion, this does not apply to property and financial assets that you bequeath to your spouse. There is an unlimited marital deduction, and you can use it to pass along resources to your spouse free of the estate tax.

This is assuming your spouse is a citizen of the United States. The government isn’t particularly concerned about losing estate tax revenue by allowing an unlimited marital deduction. This is because the estate tax may still be taxed when your spouse dies.

However, if your spouse is not a citizen of the United States, a different dynamic exists. If you are married to a non-U.S. citizen, the unlimited marital deduction is not available. Otherwise, he or she could simply leave the U.S. with the inheritance, and the Internal Revenue Service of the United States may never be able to impose death taxes.

The final issue we want you to understand is portability of the estate tax exemption which has only existed since 2011. Portability means that you could use the estate tax exclusion that was allotted to your spouse after he or she passes away to the extent it is not absorbed by your spouse.

Using the $5.25 million figure in place for 2012, this would result in a total estate tax exclusion of $10.5 million for a surviving spouse assuming none of it had been utilized previously.

Blaine Peterson
Author, Attorney
Parman & Easterday

To learn more, please download our free marital deduction in oklahoma report.