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Ask many people if they have an estate plan and they just roll their eyes. With the Federal Estate Tax Exclusion at $5.12 million most people will not be subject to estate taxes. In Connecticut, the exclusion is $2 million and many people won’t be subject to this tax. So…why do I need an estate plan?
1. Know Your Tax Bracket This is where every taxpayer needs to start. What is your tax bracket? If you don't know this number, just pull out your tax return from last year. Look at the taxable income and look up the rate that is located in the tax tables. This will help you when looking at realizing capital gains or losses, exercising and selling stock options, or dealing with the Alternative Minimum Tax.
Frequently, parents will be encouraged to give their home to their children so the government won’t take it to pay any nursing home bills. This is usually very bad advice. Why is this not an appropriate strategy?
The Bush era tax cuts are expiring. Here are some of the key tax rates for 2010 and 2011:
Ordinary Income 35% 39.6% Long Term Capital Gains 15% 20% Qualifying Dividends 15% 39.6% Estate Tax 0% 55%
Unless Congress decides to do something different, we are stuck with these tax rates. The numbers may need a little explanation.