How Much Is The Government Going To Take? Taxes. No one likes them. Perhaps the most insidious of all taxes is the estate tax. Its as if the government has to take one last bite when the taxpayer has no way to contest it because he is dead. For most of us federal estate taxes, thankfully, are not an issue. Federal estate taxes only become a factor to plan for in estates that are approaching, or over $625,000. Through the use of a slight variation of the living trust, most commonly referred to as the A-B Trust, estates of up to 1.25 million can save over $300,000.00 in estate taxes. A small investment in time and money now can net huge returns by tax savings upon your death. The A-B Trust is the way most people who have an estate tax problem do a quick step around the tax man, thereby passing the bulk, if not all of the estate, tax free. The federal government allows everyone to give away up to a total of $600,000. You can give it away either while your are alive or at your death. Any amount that you give over the $625,000 total is going to be taxed, and taxed heavily with tax rates starting at 37 percent and rapidly escalating to 60 percent. The good news is that the government will allow you to give ANY amount to your spouse free of tax. For example, married people typically leave their assets to each other with the assets going to the children after the second spouses death. Upon the first spouses death there is no tax. The bad news is that upon the second spouses death the children get hit with the tax. By making a straight disposition to the spouse the couple has wasted one of their two exemptions (Remember each person can give away $625,000.) and over funded the surviving spouse's estate. The A-B Trust solves this problem by a little trick that puts a portion of the assets in a separate trust which allows the couple to fully utilize each exemption allowing $1.25 million to avoid being taxed. While a little more complex than a straight forward living trust, this graphic below will step you through the flow of assets within the trust and describe how easy it is to avoid the tax man. If avoiding income taxes were this easy!

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