State and federal estate and inheritance tax rates are what drive most people’s estate plans, but now that tax rates are falling and exemptions are rising in many jurisdictions, how much people will leave their heirs isn’t what keeps them awake at night anymore. What they really worry about is how the money they leave will affect the lives of those who will inherit it.
So-called “death tax” rates have been the subject of much debate, reform, and repeal over the past 15 years. Some say that repeal will suppress entrepreneurship and economic growth. However, tax rates have been unreliable, so it's hard to use them when looking at a long-term estate plan. A recent Forbesarticle, titled "Estate Planning Fears That Keeps Us Up At Night,"explains what this means.
For example, from 2001 to 2010, federal estate tax rates fell until they were eliminated in 2010, but were reinstated the next year and made permanent last year when Congress set a 40% rate on estates in excess of $5 million. In addition, there are now 15 states and DC that impose their own estate tax—with six states also imposing an inheritance tax. Some states have raised their exemptions to be more in line with the federal level or have eliminated their inheritance taxes altogether.
So what does this mean to you? Well, the original article says that it's a win for parents who want to leave their children, other heirs, and charities as much as they are able. Many people are most concerned whether the wealth they have and pass on to their heirs is going to help those individuals or make matters worse. T. Boone Pickens has said publicly that he doesn't intend to leave all his money to his children. “I’m not a big fan of inherited wealth,” Pickens has said. “It generally does more harm than good.”
This is why it's so important to work with an experienced estate planning attorney so that your estate is designed with the best interests of both you and your loved ones in mind. As the original article notes, money matters in estate planning. As new tax rates become effective, it’s a good time to sit down with your estate planning attorney and discuss how the money can support your beliefs, philosophies, and charitable intentions—and how you can ready your heirs to accept and sustain it.
You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.
Reference: Forbes (October 29, 2014) "Estate Planning Fears That Keeps Us Up At Night"