Estate and Inheritance Taxes
In this section:
How taxes affect your estate
Federal Taxes
State Taxes
How taxes affect your estate
If you pass away with a large Estate, you may be required to turn over some of your Estate to your federal and state government. The tax will come in two forms, estate taxes and inheritance taxes. Essentially, the end result is the same, your estate is taxed before it passes to your heirs.
Estate Taxes are levied against the value of the entire Estate and are paid by the Estate before transfer. Inheritance taxes are levied against the value received by a person as an inheritance from an Estate and are paid by the person receiving the inheritance. The rates will typically depend on the relationship of the heir to the deceased. For example, a spouse may have a reduced rate or a total elimination of the tax.
Federal Taxes
In general, most U.S. estates are not subject to estate and inheritance taxes. As reported in the Spring 2001 issue of the Internal Revenue Service's SOI Bulletin, on average, less than 1.5 percent of U.S. estates were subject to the Federal estate tax between 1982 and 1996. Currently, the federal government excludes the first $1,500,000.00 from taxation. That amount will increase over the next few years based on the following schedule.
| Year |
|
Exclusion Amount |
|
2001
|
$675 thousand
|
|
2002
|
$1.0 million
|
|
2003
|
$1.0 million
|
|
2004
|
$1.5 million
|
|
2005
|
$1.5 million
|
|
2006
|
$2.0 million
|
|
2007
|
$2.0 million
|
|
2008
|
$2.0 million
|
|
2009
|
$3.5 million
|
|
2010
|
Repealed
|
|
State Taxes
This section provides only highlights of a very important issue. The U.S. Estate tax laws were recently revised and continue to change. The repeal indicated above for 2010 may not be permanent. Tax laws may affect your situation, depending on the size and makeup of your Estate, the state where you live, and the persons to whom your Estate passes. BuildaWill™ does not contain any tax planning advice or options for you. If you believe you may need tax advice, you should seek professional assistance.
The tax treatment of an Estate can differ greatly from state to state. Like the federal government, most states do not tax Estates unless they are large, and then they take only a portion of the amount that the federal government would have taken anyway.
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