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Federal Estate Tax How Much Can an Indiana Resident Pass Tax Free

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									Federal Estate Tax: How Much Can an Indiana Resident Pass Tax Free?   www.frankkraft.com   1
        Preserving wealth for the benefit of succeeding generations is part of the
        equation when you are planning your estate as a high net worth individual.


        Of course you want to make wise investments throughout your life to build and
        maintain your level of wealth. In the end your financial planning efforts will
        culminate with the passing of the torch as it were.


        It can be satisfying to sit back with the recognition that you are going to be able
        to do amazing things for your family members and perhaps even those who
        have not yet been born. However, the federal government can do amazing
        things as well via the imposition of the federal estate tax.


        Enormous sums of money can be lost if your wealth is not positioned with tax
        efficiency in mind. During 2013 the maximum rate of the federal estate tax is
        40%. It is potentially applied on asset transfers that exceed the amount of the
        federal estate tax exclusion. Let's take a look at this exclusion so we can see
        how much you can pass on to your heirs in a tax-free manner.


        FEDERAL ESTATE TAX EXCLUSION: A
        BRIEF HISTORY

        You may remember the so-called "Bush tax cuts." This tax relief package was
        scheduled to expire at the end of 2010. The portion of it that applied to the
        federal estate tax culminated in 2010 with a temporary estate tax repeal. That's
        right, there was no estate tax in 2010.




Federal Estate Tax: How Much Can an Indiana Resident Pass Tax Free?   www.frankkraft.com      2
        Throughout that year there was a lot of negotiating going on between
        legislators on opposing ends of the aisle. In 2009 before that temporary one
        year repeal the top rate of the estate tax was 45%, and the exclusion was $3.5
        million.


        Under the laws as they existed throughout
        most of 2010 the estate tax would have                            It can come as a
        returned in 2011. It would not have carried the                   surprise to some
                                                                      people when they hear
        same parameters that were in place
                                                                         that you can’t just
        immediately before the repeal. The estate tax                   leave assets to your
        exclusion would have plummeted to just $1                      loved ones after you
        million, and the maximum rate would have                      die without a tax being
        skyrocketed to a stunning 55%.
                                                                               levied.


        In the middle of December of 2010 a legislative measure was passed and signed
        into law by the president. It was subsequently called the Tax Relief,
        Unemployment Insurance Reauthorization, and Job Creation Act of 2010.


        Provisions contained within the Act spared us from the $1 million exclusion with
        a 55% top rate. It placed the exclusion at $5 million for 2011 with an inflation
        adjustment for 2012. It set the maximum estate tax rate at 35%.


        Unfortunately the matter was not laid to rest. This tax relief act also had an
        expiration date just like the Bush tax cuts. It was only in place for two years.
        This is why everyone was talking about the fiscal cliff at the end of 2012.




Federal Estate Tax: How Much Can an Indiana Resident Pass Tax Free?      www.frankkraft.com     3
        We were faced with the exact same situation that we were in at the end of 2010
        with regard to the estate tax parameters. If legislators did nothing the estate
        tax exclusion would have gone down to $1 million in 2013, and the top rate
        would have risen to 55%.


        A familiar resolution materialized. The American Taxpayer Relief Act of 2012 was
        passed. This act more or less kept the estate tax parameters were they were
        previously. The base exclusion of $5 million that was installed for 2011 was
        retained with ongoing adjustments for inflation. In 2013 an adjustment set the
        estate tax exclusion at $5.25 million. As a result, this is the amount that you can
        pass on to your heirs free of the estate tax.


        Although this legislative measure that we are referring to is called a taxpayer
        relief act, in fact the top rate of the estate tax was raised as a result of its
        passing. The 35% maximum rate that was in place in 2011 and 2012 was raised
        to 40%.


        SOME WORDS ABOUT SPOUSES

        You're using a portion of your $5.25 million estate tax exclusion as you are
        bequeathing assets to people on your inheritance list. That is, people other than
        your spouse.




Federal Estate Tax: How Much Can an Indiana Resident Pass Tax Free?   www.frankkraft.com      4
                                                                 There is an unlimited marital
                                                                 deduction. As a result, if your
                                                                 spouse is an American citizen you
                                                                 can leave your spouse an
                                                                 inheritance of unlimited value
                                                                 without incurring any estate tax
                                                                 liability.


                                                                 This does not mean that you
                                                                 should not worry about estate
        planning because your spouse can just inherit everything tax-free. You have to
        ask yourself what the surviving spouse is going to do with the family wealth. A
        plan is going to be necessary at some point in time, and it is best to implement
        an estate tax efficiency strategy as a couple.


        It is worthwhile to point out the fact that your surviving spouse would be able to
        use your exclusion as well as his or her own if you were to die first.


        CONCLUSION

        In summary, the federal estate tax carries a $5.25 million exclusion and a 40%
        maximum rate in 2013. If you don't take steps to gain tax efficiency 40% of
        anything that you leave to your loved ones that exceeds this exclusion would
        wind up in the hands of the tax man.


        It is possible to position your assets with tax efficiency in mind. The best way to



Federal Estate Tax: How Much Can an Indiana Resident Pass Tax Free?           www.frankkraft.com     5
        go about it would be to discuss all of your options with a licensed estate
        planning attorney.


        REFERENCES

        Internal Revenue Service
        http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-and-
        Gift-Taxes

        Forbes
        http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliff-
        deal-estate-and-gift-tax-explained/




Federal Estate Tax: How Much Can an Indiana Resident Pass Tax Free?   www.frankkraft.com   6
        About the Author

        Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law
        firms in Indiana in the area of estate planning as well as business and tax planning.

                                       Mr. Kraft assists clients primarily in the areas of estate planning
                                       and administration, Medicaid planning, federal and state
                                       taxation, real estate and corporate law, bringing the added
                                       perspective of an accounting background to his work.

                                       In addition to his practice, Mr. Kraft has lectured extensively in
                                       the areas of living trust planning, Medicaid planning, and
                                       presenting public and private seminars on the importance of
                                       proper estate planning. He has also authored various articles on
                                       estate planning and is a contributing author of LEGACY: Plan,
                                       Protect, and Preserve Your Estate–Practical Answers from
                                       America’s Foremost Estate Planning Attorneys.

                                       EXPERIENCE

        Mr. Kraft is a co-founder of the Indiana Network of Estate Planning Professionals, a charter
        member of the American Academy of Estate Planning Attorneys and a founding member of
        the National Network of Estate Planning Attorneys. He is also a member of the Indianapolis
        Bar Association, including the Taxation, Business Law and Estate Planning sections; the
        Indiana State Bar Association, including the section on Taxation Law; the Indiana CPA
        Society; and the Estate Planning Council of Indianapolis. Mr. Kraft is admitted to practice law
        before the Supreme Court of Indiana, U.S. District Courts, and U.S. Tax Court.

                      Frank & Kraft
                      A Professional Corporation
                      Attorneys at Law
                      www.FrankKraft.com

                      135 N. Pennsylvania Street Suite 1100
                      Indianapolis, IN 46204-2485
                      Phone: (317) 684-1100
                      Fax: (317) 684-6111




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