Tax Information And Guide

Copyright 2006 Ainer & Fraker, L.L.P.

Tax Software A living trust can help you reduce your estate tax liability to Uncle Sam. To see how this tax reduction works, let's examine the following hypothetical case:

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Software Tax Client Family has an estate of $4 million. The husband dies in 2006, leaving his entire estate to his Wife.

Every year millions of Americans anxiously await their yearly tax refunds from Uncle Sam. If you are one of the thousands expecting a tax refund, here is some information useful information you may not know about, as well as suggestions to get your money faster.

Every Landlord Tax Deduction Under the 2006 tax rate, each spouse is entitled to an exemption of $2 million (known as Unified Credit Amount), which is not subject to Federal Estate Tax. Any amount over $2 million is subject to taxation at a rate up to a maximum of 46%.

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Tax Help According to the current law, here is the likely scenario without a Living Trust. The husband is able to transfer his entire estate to his wife, and pay no taxes at his death. This transfer is referred to as the Unlimited Marital Deduction, and it allows the husband, upon his death, to transfer any amount to his wife, free from estate tax.

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Help Tax That sounds like a pretty good deal, until you learn why Uncle Sam supports it. Uncle Sam knows that he is not giving up his right to collect the Estate Tax, but merely postponing it. By postponing it, Uncle Sam can collect a higher rate of taxes than he can by taking it immediately because both spouses did not use their exemption.

It is also important to know that establishing a Living Trust does not change your responsibility to pay income taxes on the amounts earned by you from your job and other sources. If you have stocks, bonds or other income producing assets in your Living Trust, you must continue to pay income taxes on the amount earned from them. For rmation about the important tax rules with Living Trusts, see the Home Legal Topic " Tax Considerations".

Ernst Ernst Guide Guide Tax The husband has transferred his entire estate to his wife, and she now has an estate of $4 million. When the wife dies, Uncle Sam will allow her to use her $2 million tax exemption, but the remainder is taxed up to a maximum rate of 46%.

Tax Return The result is that the wife will pay nearly $900,000 in estate tax on the $2 million of her estate that is not excluded from the estate tax.

Return Tax Why will the wife have to pay nearly a million dollars in estate taxes?

Guide Guide Master Master Tax Remember that the $2 million exclusion is allocated to each spouse. When the husband died, he did not use his exemption, and therefore, it was not available to help his wife upon her death.

Tax Preparation The Unified Credit is a "use it or lose it" tax exemption. If you fail to use it at the first spouse's death, it is gone forever. Fortunately, this outcome can be avoided through some basic estate planning.

Preparation Tax Let's examine what happens if Client Family has a Living Trust. At the husband's death, $2 million passes outright to his wife in the Marital trust. $2 million passes to a Bypass Trust. In this scenario, both Unified Credit exemptions are used. The wife's $2 million exemption is applied against the Marital trust, and her husband's $2 million exemption is applied against the Bypass Trust.

Employer Tax Guide The result?

Tax Services Client Family passes on $4 million to their children, and the children pay no estate tax. For the price of a Living Trust, Client Family saved nearly a million dollars in estate taxes.

Services Tax Which result do you prefer for your family?

Master Tax Guide Article Source:http://www.articledashboard.com

Tax Attorney John Erik Fraker, Esq., is an estate planning attorney and managing partner of Ainer & Fraker, L.L.P., a Silicon Valley-based law firm specializing in estate planning, small business law and tax. The firm's web site is at www.estatesattorney.com .

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