Estate Tax: When and How to Be Prepared


In June 2010, Dan Duncan, a Texas billionaire and the 74th richest person in the world at the time of his death, made the pages of the New York Times for becoming the first American not to pay estate taxes in almost one hundred years. In contrast, America’s first billionaire, John D. Rockefeller, paid an estate tax of seventy percent when he died in 1937.

Mr. Duncan benefited from a quirk in the estate tax laws that created a zero percent tax rate for individuals who died in 2010. Since then, however, Congress has enacted legislation reinstating the estate tax for certain individuals. While the estate tax rate is no longer zero percent, you can minimize your exposure to estate tax if you follow these helpful steps from the Cleveland Estate Planning Law Firm.


As the law currently stands, individuals whose estates are worth less than $5 million are exempt from all estate taxes. While this may lead you to believe that you do not need to worry about estate taxes because your estate will be less than $5 million, estate tax laws have been a favorite of Congress, and they are frequently modified.

For example, unless Congress acts in 2012, the exemption will decrease to $1 million in 2013, and in fact, the exemption has historically been between $1 million and $2 million. With the average home value hovering at around $250,000, the estate tax could be a reality for many Americans.

The good news for Ohioans is that the Ohio state estate tax will be repealed in 2013, leaving only the federal estate tax to worry about.


Knowing the basics of how the estate tax works will help you understand the methods for avoiding it and preparing for it. In the simplest terms, the estate tax is applied to the value of your estate over and above the exemption amount. For example, if your estate were valued at $7 million and the exemption amount were $5 million, you would pay estate taxes on $2 million. If the estate tax percentage were 45%, you would have estate tax liability of $900,000. Thus the strategy for avoiding estate taxes is to transfer your assets or spend down your money to get as close as possible to—and preferably under—the exemption amount.


Most people don’t want to spend all of their money before they die. Instead, they want to pass on their wealth to future generations. The task would be easy if all you had to do to avoid estate taxes is give your money away before you die. Unfortunately, it’s not that simple. Congress has also implemented a gift tax, which taxes transfers made during your lifetime, to complement the estate tax, which taxes transfers made upon your death.

The current gift tax exclusion is $13,000 per person per year. That means you can give everyone you know—or don't know— $13,000 a year, every year for the next ten or twenty or fifty years (assuming the law remains the same), and never have to pay a penny in gift taxes. This provides a very useful tool to help pay down your estate while still transferring your assets to your loved ones.


You may also be able to reduce the value of your estate by using various estate planning techniques, such as using various trusts as shelters from the estate tax. Trusts also provide a great amount of flexibility. Often one of the problems with paying down your estate is that you may not know how much money you will need to keep to support yourself in the future. Trusts can bypass this problem by deferring certain tax considerations until after death. Trusts created for charitable purposes may also be exempt from estate taxes.

You should note, however, that not all trusts will allow you to avoid estate tax liability, and every situation is different.


Some individuals simply will not be able to escape the estate tax altogether. However, by consulting with an experienced attorney like James Bart Leonardi, you can minimize your exposure to the estate tax through various techniques that are too complicated and vast to explain here.

To arrange a consultation with Estate Planning Attorney Bart Leonardi click here.

Contact Our Attorney