Death and Taxes

To many people, estate planning is all about avoiding the estate and inheritance tax. That's why a lot of people give little thought to estate planning, because, as we've discussed, they don't consider themselves wealthy enough to have to worry about estate taxes. We discussed why estate planning is important even aside from taxes, but today we are discussing estate taxes.

There is a lifetime exemption amount for estate taxes. It's a combined estate and gift tax exemption, so to the extent that the exemption is used to give gifts tax free during life, it isn't available at death. But putting that aside, right now (2009) the estate tax exemption is $3.5 million. In 2010, the estate tax is slated to go away altogether. But Congress will probably renew it in 2011 and later, and there is talk that the exemption will be scaled back to the $1 million it was under the Clinton Administration.

Everything that you own at your death is included in your estate. This means all land (houses, rental properties, vacant land, vacation homes, etc.), bank accounts, CDs, stocks, bonds, vehicles, computers, everything down to your china and silverware. Even in today's depressed market, if you have a home, with everything else included, you could be bumping up against the $1 million mark. If that's the case, keep a close eye on the estate tax debates. And if you're up over $1 million, you definitely need to talk to an estate planning attorney.

Of course, everyone should have basic estate planning documents: will, durable power of attorney, and living will (medical directive).