 Depending
on how much you own when you die, your estate may have to pay estate taxes
before your assets can be fully distributed. Estate taxes are different
from, and in addition to, probate expenses (which can be avoided with a
revocable living trust) and final income taxes (on income you receive in
the year you die). Some states also have their own death/inheritance taxes.
Federal estate taxes are
expensive--they start at 37% and quickly go up to 55%. And they must be
paid in cash, usually within nine months after you die. Since few estates
have this kind of cash, assets often have to be liquidated. But estate
taxes can be substantially reduced or even eliminated--if you plan ahead.
Your estate will have to
pay estate taxes if its net value when you die is more than the "exempt"
amount set by Congress at that time.
The current schedule:
Year In Which
Death Occurs
|
Amount That Can
Be Transferred Free Of
Federal Estate Tax
|
Max. Rate Estate Tax
Estate Tax
On Excess Amount
|
|
2002
|
$1,000,000
|
50%
|
|
2003
|
$1,000,000
|
49%
|
|
2004
|
$1,500,000
|
48%
|
|
2005
|
$1,500,000
|
47%
|
|
2006
|
$2,000,000
|
46%
|
|
2007
|
$2,000,000
|
45%
|
|
2008
|
$2,000,000
|
45%
|
|
2009
|
$3,500,000
|
45%
|
|
2010
|
Federal estate tax
fully repealed
|
0
|
|
2011
|
$1,000,000
(Law reverts to law prior
to Tax Relief Act of 2001)
|
55%
|
|
