Many people tend to overlook the likelihood of being hit with a large estate tax because they aren’t considered “wealthy.” But according to a New York Family Lawyer, many upper middle-class citizens could be hit with a tax rate as high as 35%.
Under the current law, there is an exemption for estate tax of up to $5 million for those who die in 2011 and 2012. What is news to many is that this amount can easily be exceeded when you take life insurance coverage, a valuable home, healthy retirement balances and other assets into account.
“Don’t forget to count any private business ownership interests such as shares in a family corporation or partnership,” explained a New York Custody Lawyer.
He sites an example of a single parent. “She earns a healthy salary, she has a $4 million term life policy to provide for her three teenagers, has $800,000 of equity in her home, $1 million in retirement plan accounts, and $500,000 worth of assorted personal assets (cars, clothes, furniture, jewelry, and so forth). She has no debt other than her mortgage and because she has never considered herself to be anything close to ‘wealthy’ she has never done any estate-tax-avoidance planning.”
The lawyer explained that if she died tomorrow, her estate would be worth $6.3 million for federal estate tax purposes ($4 million + $800,000 + $1 million + $500,000), and her estate would accumulate a state bill of $455,000.
This scenario is very common, and they and say that for unmarried people, high life insurance coverage is the biggest reason for unexpected federal estate taxes. Married couples, that are United States Citizens, he sited have an advantage because of the unlimited marital deduction privilege.
Lawyers are now recommending to their clients setting up an Irrevocable Life Insurance Trust. This basically helps avoid traditional estate taxes on the life insurance policy because it is not officially owned by anybody. The only catch is if you die within three years of setting up the trust you are subject to estate tax on it.
In the end, a Nassau County Family Lawyer recommend talking to a professional to find out what your situation is. Although many people think they are exempt, often times they are not and only a professional can make the right recommendation. “It’s money well-spent,” one lawyer concluded.
Unexpected taxes can leave your family in financial ruin. Speak to Stephen Bilkis and Associates for advice and a free consultation. We have offices to serve you throughout the New York area, including locations in Manhattan, Staten Island, Queens, the Bronx and Brooklyn. We also have locations in Nassau County and Suffolk County on Long Island and Westchester County. Call us today to schedule an appointment at 1-800-NY-NY-LAW.