New Mexico Estate Taxes
As you begin to develop your estate plan, it is important to consider the tax implications you may face. Estate tax laws are highly nuanced and constantly changing. For this reason, it is a good idea to consult an experienced New Mexico estate planning lawyer to determine how estate taxes may affect you and to help you develop a strategic plan to minimize possible taxes on your estate. Below is a brief summary of information that you should be aware of regarding estate taxes.
The value of an estate is determined by calculating the fair market value of everything that you own, plus the value of any assets you gave away within three years of your death. For 2009, any estate valued at less than $3.5 million is not subject to the estate tax. This tax-exempt amount changes from year to year. Keep in mind that any amount of money left a spouse who is a U.S. citizen is free of tax (special arrangements can be made to leave money tax-free to a spouse who is not a U.S. citizen).
Estate taxes have slowly been decreasing as the tax exempt amount has been increasing. At one point, the estate tax rate was up to 50 percent; for 2009, the estate tax rate is set at 45 percent. This can be a significant loss for people who want to pass substantial estates to their heirs.
There are several ways to minimize estate taxes, including:
Any amount of money donated to a qualified 501(c)(3) charity is free of estate tax.
You may gift up to $1 million (cumulative) free of tax in your lifetime before the gift tax is imposed; however, the amount you gift away during your lifetime will reduce the amount of money exempt from estate taxes dollar for dollar. The $1 million dollar limit and direct effect on estate taxes can be avoided by gifting no more than $12,000 to any number of individuals in any given year. Talk to a qualified New Mexico estate planning lawyer to better understand how you can use gifting to reduce estate taxes.
Leave Money to Grandchildren
While there is a generation skipping tax to prevent wealthy families from only having to pay an estate tax every other generation, the first $1 million left to grandchildren is tax-free.
Establish a Trust
Estate taxes may be minimized through irrevocable trusts, like a family trust and irrevocable life insurance trust. If you are married, you may also be able to reduce taxes and take advantage of the federal estate tax exemption by establishing a joint revocable trust.
It is always a good idea to talk in an experienced attorney before making any major decisions about your estate plan. Since estate tax laws are constantly changing, if you have previously established an estate plan, you may want to talk to an attorney to see if you need to change your estate plan to make it compliant with current estate tax law.
Contact our experienced New Mexico estate planning lawyers in Albuquerque, Farmington, Las Cruces, Roswell or Santa Fe to learn more about estate planning and the laws that may affect you.