The imagination of the country is captured every time the Powerball lottery jackpot accumulates to some mind-blowing number. The largest jackpot in history was recently up for grabs, and the winning ticket was purchased in Florida.
What would you do if you were to walk away with $250 million after paying income taxes?
Given a few minutes to think about it you could certainly come up with quite a few ideas. However, one of the first things that you should do is consult with a licensed estate planning who has a background assisting high net worth individuals.
The federal estate tax carries a maximum rate of 40%. There is a base $5 million exclusion that was put into place in 2011, and it is updated annually to account for inflation. As a result the 2013 exclusion is $5.25 million.
What this means is that if you were in possession of $250 million, only the first $5.25 million could be passed on to your heirs free of this 40% estate tax.
If you were to win this kind of money it is likely that one of the first things that you would want to do would be to give some of it away to your family members. However, there is a gift tax in place, and you can only give $14,000 to any one person in a given year before the tax becomes applicable. It carries the same 40% top rate as the estate tax.
There are ways to position assets in an effort to minimize gift and estate tax exposure. Hopefully the winner of this huge jackpot understands the importance of planning ahead with tax savings in mind.
The Potter Law Firm is a member of the American Academy of Estate Planning Attorneys.