Estate Tax Planning – Tax Law Basics


Estate tax planning is crucial when it comes to guarding your last wishes. You need to protect your assets and ensure that those who you leave your estate to receive it as intended. This all comes together through estate and inheritance planning, where you will decide how you want your assets divided up with the help of your attorney.

Equally important are the tax exclusions, deductions and credits that the estate can receive, if the estate has been planned correctly.

The first step you must take is understanding the process and other tax law basics. Let’s start with the four main components of successful estate tax planning:

  • The full disclosure of exactly what your personal desires are regarding your estate
  • A complete list of every asset and liability to be included in the estate tax planning
  • A copy of any previously existing estate tax plans created for your estate
  • Open discussions with your estate planning attorney


Each of these elements are important,
so that your estate planning attorney has a full understanding of the case that he or she is working with. This is important so that, when you die, your estate is distributed properly and pays out as few taxes as possible. Most estate planning attorneys will first calculate an estimated estate tax liability, so that you are aware what amount will be deducted from your estate and how much is left to distribute to family and friends.

The other pertinent fact to know about estate tax planning is that there can be a considerable amount of tax exclusions, deductions, and credits, which enable your recipients to keep more of your money and assets. Depending on when you die and the current tax law at that time, there may be a considerable amount of money in your estate that will be exempt from tax liability. For example, in 2008, there is a $2,000,000 estate tax exemption.

For example, in 2009 there is a $3,500,000 estate tax law exemption. This means that your estate would only be taxed for every dollar over this amount. So, if the estate has a value of $4,000,000, the taxable amount would be $500,000. These exemption limits have risen considerably over the last decade, as the limit in 2002-2003 was just $1,000,000.

The taxable amount will be taxed a certain percentage based on the tax rate for that year. So, in the above example, the taxable amount of $500,000 would be taxed at a maximum 45%. The total tax on the estate would be $225,000. While the exemption limits have risen 250% since 2002, the maximum tax rate has decreased by 10% during that same time period. This means that recipients have had to pay fewer taxes on their loved ones’ estates.

The good news is that there are alternatives, which estate tax planning allows you to implement, which may reduce the tax on the excess amount. The best option is to get together with your lawyer to lay out all of the facts about estate planning and taxes, and come up with the best plan that will maximize your assets and decrease the taxation of your estate. To discover how we can help you, please see our Practice Areas.

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