The federal estate tax is very much a factor for high net worth individuals and their families. In 2012 the estate tax exclusion sits at $5.25 million, and the top rate of the tax is 40 percent.
This means that anything that you leave behind that exceeds $5.25 million could be shaved down considerably if you don’t do anything to gain estate tax efficiency.
When you are thinking about how far this $5.25 million exclusion will go you should understand the fact that there is an unlimited marital deduction. If you are married and that marriage is recognized by the federal government you can leave any amount of money to your spouse, free of the estate tax.
That is, assuming you and your spouse are American citizens. If you were to marry someone who is not an American citizen the marital deduction does not apply.
All is not lost however, because it is possible to provide for your spouse in a tax efficient manner by conveying assets into a qualified domestic trust.
There are very specific government requirements, but if you can meet them, earnings from the trust can be distributed to your surviving spouse without being subject to the estate tax. If the survivor was to receive money out of the principal the estate tax would be applicable. There are exceptions, if the money is being used for certain specified purposes.
If you’re interested in learning more about qualified domestic trusts by all means, contact our firm to set up a free consultation.
Larry Parman
Author, President and Founding Attorney
Parman & Easterday
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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