Estate tax consideration important for every estate plan

The goal of nearly every estate plan is to keep assets out of state control and to maximize the amount that gets passed on to the selected heirs. While drafting a will is a good first step toward achieving this goal, most people can benefit greatly from taking a more complex approach toward their estate planning strategies.

This is especially true for people who expect to pass on a significant amount of assets. The federal government imposes a hefty tax on estates that exceed a certain value. Under current law, the top federal estate tax rate is 40 percent.

At the end of 2012, Congress passed a law increasing the amount of assets that can be excluded from the federal estate tax. As a result, Americans can now pass on $5.25 million tax-free. Married couples may double this amount, resulting in combined tax-free transfers of up to $10.5 million. Had the law not been changed, the individual limit would have been reduced to $1 million.

The exclusion does not apply only to transfers made at death. Gifts made during a person's lifetime also count toward the limit. For the purposes of the estate tax, any gift in excess of the annual limit — which is currently $14,000 per person — will be applied toward the excluded amount.

Minimizing estate tax liability

While $5.25 million may seem like a generous amount, it is important to remember that the estate tax exclusion can — and does — change frequently. In addition, even a several million dollar exclusion may not protect an entire estate when you start to consider how valuable real estate can become over time.

For that reason, most people can benefit from taking proactive steps to minimize estate tax liability.

There are a number of strategies that can be used to achieve this goal. Some people may choose to transfer assets into a trust that will be exempt from estate taxation. Others may choose to fund college savings accounts for their children or grandchildren, or to simply pay their tuition directly when the need arises. Another popular strategy is to make charitable contributions now, instead of waiting to pass on assets after death.

Working with an estate planning attorney

Every family is different, and there is no one-size-fits-all solution to estate planning. In addition, estate planning law is complex and subject to frequent change.

As such, it is important to work with an experienced estate planning attorney when making decisions about how you will pass your assets on to your heirs. The attorney will be able to work with you to identify your goals and figure out the best ways to achieve them. In addition, the attorney will stay abreast of changes in the law and help you update your estate plan if the need arises.