Accumulating wealth is a primary objective of many people who strive for success. However, once you have achieved your goals, wealth preservation will be a priority as well.
Why would you have to preserve wealth? Doesn’t money naturally grow if you invest it appropriately?
This is a far-reaching question, but in this post we will take a narrow focus. From an estate planning perspective, wealth preservation is going to be necessary because of the existence of death taxes.
Federal Estate Tax
There is a federal estate tax that is applicable in all of the 50 states. For the rest of 2013, the amount of the federal estate tax credit or exclusion is $5.25 million. When the new year arrives, this figure will go up to $5.34 million.
This is a per person exclusion. If you are married, you and your spouse would each have your own respective $5.34 million exclusion in 2014.
If you are in possession of assets that exceed this exclusion amount, your assets are subject to the federal estate tax. At the current time the maximum rate of this tax is 40 percent.
New York State Estate Tax
If you live in the state of New York you enjoy a lot of benefits. However, you are also exposed to a great deal of taxation. In the Empire State we have a state level estate tax, though most states do not have their own death tax.
Not only do we have a death tax, but its exclusion is lower than the federal exclusion. In the state of New York the amount of the state level estate tax exclusion is just $1 million. The top rate of the tax is 16 percent.
Trusts for Wealth Preservation
Many people use revocable living trusts when they are arrange for the transfer of financial assets to their loved ones. It is important to understand the fact that revocable trusts would not protect assets from the estate tax or from creditors and litigants for that matter.
When you use a revocable trust you retain incidents of ownership. Therefore, assets that have been conveyed into a revocable living trust would potentially be subject to the estate tax on both the federal and the state levels.
However, there are other types of trusts that can be used to gain estate tax efficiency. Irrevocable trusts such as charitable lead trusts, grantor retained annuity trusts, generation-skipping trusts, and others are often used by those who would like to mitigate estate tax exposure.
Estate Planning for High Worth Individuals
If you are interested in discussing advanced estate planning techniques with a licensed professional, we invite you to contact our firm. We would be glad to evaluate your situation and help you devise an effective wealth preservation plan.
Mark S. Eghrari, Estate Planning Attorney
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