Many people are truly amazed when they hear about the details of the federal estate tax. For one thing, this is a tax that is only imposed on some people and who they are varies in a rather random manner.

This is due to the fact that there is an estate tax exclusion, the amount of which changes regularly. At the present time it stands at $5 million, but under current laws when 2013 rolls around the estate tax exclusion will go down to just $1 million.

Right now the rate of the tax is 35%, but in 2013 it is scheduled to go up to 55%. So if you pass away on New Year’s Eve in 2012 with $5 million your family will pay no estate tax on the federal level. But if you pass away on the next day with the same $5 million, $4 million of that will be taxed at a rate of 55%.

As you can see, it is very important to be proactive about gaining estate tax efficiency. If your home is pushing your estate above the exclusion amount, you may want to consider the creation of a qualified personal residence trust.

With these trusts you name a beneficiary who will inherit the property eventually and you state a term during which you will continue to live in the residence. By creating the qualified personal residence trust you remove the value of the home from your estate.

The taxation does not end there unfortunately. There is a gift tax in place that carries the same rate as the estate tax, and funding the trust would constitute a taxable gift.

However, this strategy is effective because the taxable value of the home is reduced by the interest that you retain in it during the period of time that you reside there after placing it into the trust. In the end the taxable value will be much less than the fair market value of the home, and considerable tax savings will be the result.

The Potter Law Firm is a member of the American Academy of Estate Planning Attorneys.

If your parents fail to prepare for old age and the possibility that they may need extended care at some point, or if you are not prepared to care for your parents, it is very possible that the only inheritance that you will receive is a negative one. A negative inheritance is basically when the cost of caring for an ailing parent exceeds any inheritance that you may receive from that parent when they pass away.

The cost to children that care for their aging parents includes not just financial, but also physical, as well as emotional. Very often those that take on the responsibility of caring for aging loved ones must give up much of their own life, including their jobs, and sometimes even their homes. It may be necessary to live with your parents in order to give them the level of care that they need. In many cases the primary caregiver cannot hold down a job while caring for their parent, plus they could also need to pay out of their own pocket for their parent’s upkeep.

While it is true that most people do this willingly, and would prefer it to placing their parent in a nursing facility, the willingness to take on this responsibility does not take away from its negative affect on your life.

The only way to avoid this type of problem is if both you and your parents are prepared for the possibility that extensive, long-term care may become necessary as your parents age. If you are prepared for this, you can take steps to ensure that the negative impact is as small as possible.

Know what your options are, and how much financial help you can expect from Medicaid or the Department of Veterans Affairs. You will also want to be familiar with the community services that are available to help ease the burden on families. If at all possible, parents should try to prepare for the possibility of needing long-term care by purchasing long-term care insurance. Many long-term care insurance policies include coverage for home care, which will go a long way in easing the burden on children.

The Potter Law Firm is a member of the American Academy of Estate Planning Attorneys.