What are Estate Taxes?The
saying goes that there is no escaping death or taxes. It hardly seems
fair, but an ordinary tax return must be filed for the last taxable year
of a person’s life. Estate tax is different. Estate taxes are high but
there is an excluded amount that changes year by year that can pass free
of tax. For U.S. citizens in 2008, the excluded amount was $2 million.
For 2009, the exclusion amount was $3,500,000. There was no estate tax
in 2010, but the rules concerning the valuation of inherited assets,
called the "tax basis," changed in a way that was not favorable to a
beneficiary. Congress has passed a new law, retroactive to January 1,
2010 that allows one of two options for 2010. Personal Representative
may opt to have no estate tax and the original tax basis in inherited
property, or they may utilize the 2011 rates, which are 35% tax on the
amount over $5 million dollars. Between 2011 and 2012, the excluded
amount will be $5 million dollars in value, with an estate tax of 35% on
assets over that amount.
Estate
taxes apply to the total fair market value of the deceased’s estate,
including houses, life insurance, bank and stock accounts, savings
bonds, IRAs, jewelry and other personal effects, and other assets on the
date of death. Final medical bills, funeral expenses, administration
costs, gifts to charity, and attorney's fees are subtracted from this
number to calculate the net taxable estate. If a death occurs in 2011-2012,
estate tax will generally be due when the net taxable estate exceeds
$5,000,000. If an estate is over
the $5 million dollar threshold, there are still a number of ways of
transferring wealth prior to death that reduce taxation, too
complex to discuss in these brief notes.
Information on this website is not legal advice or a substitute for legal advice. Every situation
is different. You should contact your attorney to obtain advice on your
particular issue or problem.
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