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What exactly is the estate tax?
The Economic Growth and Tax Relief Reconciliation Act of 2001 revised the federal estate and gift taxes. The Federal estate tax disappears in 2010 but then returns to $1 million when it is reinstated (unless Congress extends the repeal). In the meantime, there are a number of phased-in changes:
(1) the estate tax exclusion amount ($2 million in 2006 and 2007) gradually rises to $3.5 million in 2009;
(2) the top federal estate tax bracket (and GST rate) will be reduced from 46% in 2006 to 45% in 2007--2009.
(3) the gift tax remains, but the top tax rate is also reduced from 45% in 2007 to 35% by 2010.
(4) beginning in 2002, the lifetime gifting exclusion caps at $1,000,000.
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.
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. |
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