For individuals and families in Texas with substantial financial assets, estate tax planning is an important concern. A new federal law passed earlier this year, referred to as the American Taxpayer Relief Act, has established that the amount excluded from federal estate taxes is $5 million, and that the amount will be adjusted a bit each year to take inflation into account.
For 2013, the inflation adjusted amount is $5.25 for each individual. Another good thing to know is that, for a married couple, if one spouse dies without using all of their $5.25 million federal estate tax exclusion, the unused portion of their exclusion amount is added to the exclusion amount of their surviving spouse.
Paradoxically, two economic factors that may be troubling to many in some contexts — lower values for homes and other real estate and historically low interest rate — may actually be helpful in avoiding exposure to federal estate taxes.
Additionally, there are a number of planning mechanisms that can further remove assets from an individual’s estate and thus avoid federal estate taxes for assets that are larger than the current exclusion amount. These include the grantor retained annuity trust (GRAT) which is most often used to protect the future appreciation of stocks from federal estate taxation, and the qualified personal residence trust (QPRT) intended to provide protection against federal estate taxation of any increase in the value of a residence.
There are some technical rules for properly setting up such trusts, and those interested in using them need to consult with an experienced lawyer. With proper planning and good legal advice, much or all of the impact of federal estate taxes can be avoided.
Fox Business, “Shielding Your Assets From Estate Taxes” Judy Martel, Jul. 29, 2013