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Page 10 of 18 |
What is the estate tax? |
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All property ( and certain powers) that a person has at the time of his/her death is subject to tax. You've heard the saying that, "the only thing certain in life is death and taxes," - well, it's not certain but if it wasn't taken away from you by tax during your life it can be taxed at your death and taken from your estate. The estate tax is payable by your estate - it is usually paid by the estate of the decedent before property is distributed to the beneficiaries of the estate. Barring an extension, the estate tax is due within nine (9) months after your death.
Everyone's estate is subject to the estate tax; however, there is:
(1) an unlimited estate tax marital deduction when property is passed to a surviving United States citizen spouse of the decedent (so long as certain prerequisites are met),
(2) a unified credit which enables every individual to dispose of up to a certain indexed dollar amount of property by gift during lifetime and distribution after death,
(3) an exclusion for disposition of property to a qualified charitable organization.
The unlimited marital deduction, qualified charitable organization deduction and unified transfer tax credit enables most estates to be distributed without incurring any federal estate tax. In addition, there are many ways in which you can structure your estate - to take advantage of available exclusions, exemptions, credits and deductions - so that the tax bite is reduced.
Most states have an estate tax that is tied into the federal estate tax, but the phase-out and repeal of the federal tax automatically costs a loss in revenue for the states. As a consequence, some states are passing their own laws to replace the declining revenues. For example, Illinois, Indiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Vermont, Virginia, Washington, Wisconsin and District of Columbia have enacted their own estate or inheritance tax laws. Because states have adopted different approaches, estate planning has become more complicated, making planning more important. It is highly recommended that you seek professional tax advice because the state bit could eat up any inheritance
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