What is Estate Tax Planning?

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  • Written By: Carol Francois
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 February 2020
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Estate tax planning is a process that allows the owners of property and assets to determine how their assets will be redistributed after they die. Every country has estate taxes, which are deducted from the estate before it is paid out to the beneficiaries of the will. Estate tax planning allows individuals to arrange their finances in a way to minimize the taxes paid.

Careful estate tax planning allows you to eliminate all probate costs, as well as reduce estate taxes. Probate is a legal process through which your will and estate are reviewed and decisions made on the best way to distribute your assets. In the United States, if you don't have a will, then your estate automatically goes to probate.

There are several ways to minimize estate taxes. The most common is to pass the property on to the beneficiaries while you are still living, and the other is to skip a generation and bequeath your estate to the grandchildren. These methods both present unique challenges that would need careful planning to address.

In the US, the tax reform act of 2001 removed all estate taxes for people who pass away after 2010. However, there is a provision that would allow this act to be overturned by the government in place at that time. The estate taxation rate has been dropping significantly since 2002, with the greatest benefit available to estates valued at more than $1,000,000 US Dollars (USD).


A will is a legal document used to state how you want your property and assets to be distributed after your death. The will is also used to provide clear instructions that are based on the estate tax planning that was done in advance. A living will is a legal document that allows the assets to be transferred to the beneficiaries while still living.

An estate of $1,000,000 USD or more can save between $10,000 and $20,000 USD in estate taxes using a living will. There is a risk with living wills that the expenses will exceed the income, as it is not possible to know in advance exactly how long someone will live and what types of expenses they may incur. These items must be given careful consideration before making a living will.

There are five core concepts in estate tax planning; gift tax, estate tax, stepped up basis at death, unified estate and gift tax credit, the credit exemption trust and the marital deduction. The gift tax allows an annual tax free gift up to $11,000 USD per beneficiary. A married couple's gift tax limit is $22,000 USD.

Estate tax is a federal tax that is calculated at the time of the owners’ death on property. The tax is base on the fair market assessment of the property, conducted at the time of the owner's death. Its valuation can also be done using an alternate validation date.

The stepped up basis allows the property to be taxed based on the value up to six months prior to the death of the owner, should the value have decreased during that period. This rule does not apply to income earned before the person’s death. Included in this income are retirement benefits, unpaid compensation and property sold prior to death.

Everyone is entitled to receive a credit of $1,000,000 USD in gift and estate taxes in their life. This credit is normally used to transfer an estate to a surviving spouse with little to no estate taxes assessed. In estate tax planning, the unified credit is very important, as the vast majority of estates are valued at less than $1,000,000 USD.

The marital deduction process in estate tax planning allows all property and amounts that are directed to the surviving spouse to be tax-free. Upon the death of the surviving spouse, the estate taxes are assessed on the entire estate as it passes into the hands of the beneficiaries. This provision ensures that no undo hardship is forced on the surviving spouse and is part of estate tax planning.



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