I get asked the following question often "will my family have to pay estate tax when I die?" For 99% of the population, the answer to that question is no. An individual can pass up to $5.25 million in 2013 Estate Tax Free. In 2014, each person has a credit of up to $5.34 million. Furthermore, as of last year, spouses may combine their unused individual credit amounts and pass on up to $10.68 million at the death of the second spouse (In 2014, current law is $10.5 million), assuming none of the credits were used during their lifetimes.
To calculate the value of an estate to see if it is above or below that threshold (again, only about 1% of people exceed the threshold), take the fair market value of the items (generally at the date of death), not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests, and other assets.
Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses, and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.
Estates in excess of the exemption can utilize advanced planning techniques to address the potential estate tax liabilities.
For those of us that do not have potential estate tax problems the basic benefits of estate planning are as significant as ever, if not more so when considering the back log of probate courts. Probate is generally a very costly, inefficient and unnecessary way to transfer property. And don't even get me started on Conservatorships (living probates), which is what happens when someone loses mental capacity without having a proper disability plan documents (generally powers of attorneys and living trusts) in place.
Basic Estate planning allows you to control your property while you are alive and well, provide for the handling of your affairs if you become disabled, and give your property at death to who you want, when and how you want to leave ot to them. It is a necessary part of any financial plan. If you have life insurance, or a home, or a child, your family needs and deserves a proper estate plan.