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Avoid These Estate Planning Mistakes That May Increase Your Taxes

George Sterling | Friday, November 9th, 2012

If you plan on leaving your wealth for your children, then effective estate planning is the most important thing you should care about. Here are some common mistakes people make that have them end paying extra and unnecessary taxes to the IRS taxing authorities resulting in reduced wealth left for heirs. If you follow the steps, you can easily avoid paying the taxes.

Keeping yourself well informed of the State Estate Tax Law

Many states in the U.S have their own death tax or state tax laws. Many of these authorities have separated themselves from the federal estate tax. In simple language, it means that your estate is subject to all state tax even if it isn’t due on Federal estate tax.

For this year only, the federal estate tax exemption currently resides at $5.12 million. Without effective estate planning and having no knowledge of the state estate tax law, your heirs could end up paying a lot of state estate tax upon your death. To avoid this situation, refer and review your current financial standing and produce effective plans to minimize the tax.

Leaving all your estate to your spouse

This is a general mistake that a lot of couples make. In this scenario, the husband may leave everything he owns for the wife and vice versa. This is generally ineffective because the co-owned estate could end up having more state estate tax than the normal $1 million upon death. Although if one of the spouses die, the state estate tax exempts death tax for the first spouse to die, but this also means that the combined estate now owned by the living spouse may be subject to double death tax. This will probably exceed the $1 million exempt.

Completely avoiding death tax is a hard task, but with effective estate planning, you could significantly reduce the amount.

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