Death Tax and the rise in value of Lake of the Ozarks real estate

The "death tax" carries big and serious implications for many vacation homeowners.  The tax requires payment based on the value of a person’s estate above a certain value.  The current maximum rate is 46%.  Congress has approved a schedule that increases the amount an individual can leave to heirs tax-free to $2 million in 2006-2008 and eventually to $3.5 million in 2009. In 2010, it will supposedly be repealed altogether.

Like many taxes that are put in place to "tax the rich," this tax really burdens the middle class and the wise real estate investor, because of long term appreciation of real estate.   When you add in a person’s IRA, 401k, and life insurance policies, it’s not hard to see where this tax can hit a large segment of the population. 

I recently listed a Lake of the Ozarks waterfront house for sale that had a by-pass trust in place to avoid the estate tax.  Typically a bypass trust is worded so that at the time of death assets equivalent to the current legal estate tax exemption go to the trust, generally benefiting the children. At the time you set this up, you probably assumed that would be about $675,000, the current legal exemption. If $1 million is funneled away from the surviving spouse, that could leave her with much less than you intended.

Say your estate is worth $1.5 million. You might want to direct $700,000 to the bypass trust. Your spouse would receive $800,000, rather than the $500,000 she would get if you diverted the maximum legal exemption. More than likely, both of you would still leave your children a tax-free inheritance.  You should consult an estate planning expert for more information since this is areal estate site, and nothing on this site constitutes leagal or tax advice.

If you have any questions about buying or selling Lake of the Ozarks real estate, you can always contact John Garrett at 573-302-2320 or e-mail me for a fast response. 

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