Most estates don't owe tax, but it pays to be informed. Here's an easy introduction to estate and gift tax laws.
Most estates -- at least 99% -- don't. The federal government imposes estate tax at your death only if your property is worth more than a certain amount, which depends on the year of death. But all property left to a spouse is exempt from the tax, as long as the spouse is a U.S. citizen. Estate tax is also not assessed on any property you leave to a tax-exempt charity.
|Year of Death||Exempt Amount|
2006, 2007 or 2008
No estate tax
$1 million unless Congress extends repeal
The current (2007) federal estate tax rate is 45%. That rate is scheduled to stay the same until 2009. There will be no estate tax in 2010 unless the current tax law is amended.
Yes, although there are fewer ways than many people think, or hope, there are. Here are some of the most popular:
No. The government long anticipated this one. If you give away more than $13,000 per year to any one person or noncharitable institution, you are assessed federal "gift tax," which applies at the same rate as the estate tax.
Making gifts of $13,000 or less, however, can yield substantial estate tax savings if you keep at it for several years. Some other kinds of gifts are exempt from the gift/estate tax as well. You can give an unlimited amount of property to your spouse, unless your spouse is not a U.S. citizen, in which case you can give away up to $125,000 (2007 figure) per year free of gift tax. Any property given to a tax-exempt charity avoids federal gift taxes. And money spent directly for someone's medical bills or school tuition is exempt as well.
Yes. Even if your estate isn't big enough to owe federal estate tax, the state may still take a bite.
Estate tax. Until recently, most states didn't impose their own estate tax; instead, they took a share of the federal estate tax paid by large estates. (This is called a "pick-up" or "sop" tax.) But states no longer get a share of federal estate tax. To get back some of what they're losing, some states are collecting tax from estates that aren't big enough to owe any federal tax. So far, almost half the states have changed their laws so they can keep collecting estate tax.
For example, in New Jersey, Rhode Island, and Wisconsin, estates worth more than $675,000 may owe state estate tax. Property left to a surviving spouse, however, is exempt from state estate tax, just as it is exempt from federal estate tax.
Inheritance tax. Some other states impose a separate tax on a deceased person's property, called an inheritance tax. The tax rate depends on who inherits the property; usually, spouses and other close relatives pay nothing or a low rate.
If your state imposes estate or inheritance taxes, there probably isn't much you can do. But if you live in two states -- winter here, summer there -- your inheritors may save money if you can make your legal residence in a state that doesn't impose these taxes.
Cona Elder Law is a full service law firm based in Melville, LI. Our firm concentrates in the areas of elder law, estate planning, estate administration and litigation, special needs planning and health care facility representation. We are proud to have been recognized for our innovative strategies, creative techniques and unparalleled negotiating skills unendingly driven toward our paramount objective - satisfying the needs of our clients.
The Difference Between Elder Law and Estate Planning Attorneys
5 Types of Trusts in New York
Why Hire An Elder Law Attorney
Health Care Proxy vs. Living Will: What’s the Difference?
Estate Planning for Your Pets: Arranging for the Care of Your Beloved Pets After Your Become Incapacitated or Pass
Legislature simplifies the power of attorney process