Ask some people about estate and gift taxes and they may tell you that the taxes are designed to unjustly take money from the rich. Ask a different group of people about the same estate and gift taxes and you’re certain to get a different answer that suggests that the way taxes are designed for estates and gifts is exactly how it should be.
What are Estate and Gift Taxes
Those who live a financially affluent lifestyle might be inclined to answer the question with a scowl, a smirk and a comment of disdain in response to the inquiry about what estate and gift taxes are. This is because only those with a significant amount of wealth are subject to the requirements that are associated with these taxes.
Estate and gift taxes are the government-imposed taxation requirements which are applicable to estates and gifts that are valued at more than $1,000,000. Although estate taxes and gift taxes are not exactly the same, the manner in which they are taxed is very similar. The point to bear in mind is that you can have an estate worth multiplied millions but not have the income to match. If such is the case, estate taxes can threaten to have your estate taken from you by the government for non-payment of the taxes.
Both estate and gift taxes can be as high as 46 percent of the value of the estate. This means that an estate worth just more than $2,000,000 can cost nearly $100,000 in taxes.
What are Some Options
One of the options that many estate owners have opted for is to deed their estate or gift significant portions of their estate to their grandchildren. This process, which involves skipping a generation in the hopes of also skipping some of the taxation, has proved to be something of a backfiring.
When a generation is skipped, in essence the estate tax of 46 percent can be doubled, creating an astronomically high 72 percent tax rate. The process of choosing a well qualified attorney can be the start of receiving sound advice that helps to avoid such taxation nightmares. After all, no matter what the value of the estate may be, no one wants to give it away in taxes.
What Does It All Mean?
What it means is that proper estate planning is paramount to knowing your rights and understanding tax laws when it comes to estates and gifts. There are loopholes of sorts that can be used such as gifting or deeding an estate after death. These measures are not to be done arbitrarily or casually as they can impact your estate to the point of rendering it with a lowered value due to taxes paid or can cost your loved ones taxes that they cannot afford which may cause them to subsequently lose everything you’ve left behind for them.