Estate Taxes

The old saying “nothing is certain but death and taxes” has been true for ages. However, in the age of estate planning, one can also say that nothing is certain except “death taxes,” at least for certain people. However, with a minimum of foresight, you can avoid passing on taxes, along with your estate, to your heirs.

What Are Estate Taxes?

Your “estate” is, technically, everything you own, from furniture and real property to stock portfolios and savings accounts. An estate tax is essentially a transfer tax on the property in your estate to your heirs after your death. Such taxes were intended to prevent large transfers of wealth within families without consequence, which were believed to contribute to something of a caste system in the United States. Estates left to your spouse or to a charitable organization are generally not subject to estate taxes

Federal Estate Tax Laws:  

Not everyone’s estate is subject to an estate tax. Quite simply, your heirs will have to pay a tax on the transfer of your estate if, at the time of your death, the total value of your estate exceeds the “exempt” amount proscribed in federal legislation. Currently, the exemption amounts are as follows:

• 2008: The exemption amount was $2 million, with any property over and above that amount in the estate subject to an estate tax of 45 percent;
• 2009: The exemption amount is $3.5 million, with any property in the estate over and above that amount subject to an estate tax of 45 percent; and
• 2010: The estate tax amount for this year is repealed by 2001 Act of Congress
• 2011: If Congress does not enact a new exemption amount for this year, the exemption will revert to $1 million.

State Estate Tax Laws:

In addition to federal laws, some states have enacted their own estate taxes. Moreover, some states, such as Kentucky, impose not only an estate tax, but an inheritance tax, which is paid by the heirs in addition to state and federal estate taxes. Inheritance taxes differ from estate taxes in that they are payable by the heirs based on the total amount of the estate inherited. You can find the applicable estate and inheritance taxes in your state at the following site: http://www.finance.cch.com/text/c50s15d170.asp.

Avoiding Estate Taxes

Once you determine that your estate may be subject to an estate and/or inheritance tax, what can you do about it? There are several things you can do in order to avoid estate taxes or to reduce the amount of taxes to which your estate is subject. Some of the most common ways to avoid or reduce estate taxes are as follows:

• Combining the exemption amounts available to a husband and wife by creating a joint will;
• Putting estate property into a living (or inter vivos) trust; and
• Transferring property to one’s heirs prior to his death.

Legal Help for Estate Taxes

 Though the concept of estate taxes is simple enough, structuring your estate to avoid them can be another matter altogether. If you believe your estate may be subject to an estate tax, you should seek the advice of a qualified estate planning attorney or financial planner.