What You Need To Know
Estate Taxes
Estates are subject to two kinds of taxes: Federal Estate Tax and State Death Tax.
The Federal Estate Tax has a minimum of 18% and a maximum of 55%. There is, however, an exemption from this tax if the value of your estate is below a certain threshold. In 2003, for example, an estate worth less than $1,000,000 would not be subject to estate tax. This exempt amount is increasing annually as follows:
- 2002 - $1,000,000
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2003 - $1,000,000
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2004 - $1,500,000
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2005 - $1,500,000
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2006 - $2,000,000
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2007 - $2,000,000
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2008 - $2,000,000
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2009 - $3,500,000
The future of the estate tax is uncertain. Under current law, there will be no estate tax in 2010 – in other words, the exempt amount will be unlimited. This phase-out, however, could be short-lived; the estate tax is scheduled to be reinstated in 2011 unless further legislative action is taken.
In some states (such as California), if you do not owe Federal Estate Tax then you do not owe state death taxes either. If you do owe Federal Estate Tax, then a portion of that amount would be paid to the state to satisfy the death tax. Your total tax liability would therefore remain the same.
Example: If your estate is worth $1,100,000 in the year 2003 (thus, $100,000 over your exemption), then your total tax liability would be $23,800, divided in the following manner: $23,240 in federal taxes and $560 in state death tax (for a total of $23,800). The exact amount of these taxes is based on schedules provided by the government and varies state by state. You can go to the following website to figure out your tax liability: www.IRS.gov.
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