The first thing you’ll need to do is find out how much property is included in your taxable estate. Your taxable estate includes any property listed in your own name, including retirement accounts, bank accounts, homes, vehicles, personal property, business interests and life insurance policies.
The amount that will be taxed is any amount exceeding the federal estate tax exemption amount. During 2011 and 2012, that amount is $5 million, though it will be reduced to $1 million at the end of 2012 if Congress does nothing in the meantime. Estates exceeding the exemption amount are taxed at 35 percent until the end of 2012. That amount will be 55 percent after 2012 unless Congress determines otherwise in the meantime.
Practically speaking, most people will not have to worry about federal estate taxes until after 2012, but that doesn’t mean there is nothing else to worry about, since there are also state taxes to cover. New Jersey has both an estate tax and a transfer inheritance tax.
In our next post, we’ll look at how life insurance can be a useful tool for ensuring that property passed to heirs remains untouched by estate taxes and other estate expenses.
Source: Fox Business, “How Life Insurance Can Save Heirs a Bundle,” Margarette Burnette, Sep 27, 2011.