D E A T H  T A X E S

In addition to the expense and delay of probate, your family may also be liable for death taxes. There are two types of death taxes: the federal estate tax and the state inheritance tax. Many states have abolished the inheritance tax but the federal estate tax is still around and it is one of the largest taxes a family will ever have to pay. The federal estate tax is a tax on your right to transfer property to others at your death. Currently, the federal estate tax rates start at 37% and quickly rise to 60% of every dollar in your estate over the amount of the exemption.

TAXABLE ESTATE FEDERAL ESTATE TAX
$ 600,000 $ 0
$ 750,000 $ 55,000
$ 850,000 $ 94,000
$ 1,250,000 $ 255,500
$ 1,350,000 $ 298,500
$ 1,500,000 $ 363,000
$ 1,750,000 $ 475,000
$ 2,000,000 $ 588,000
$ 2,250,000 $ 710,000
$ 2,500,000 $ 1,025,800
$ 3,000,000 $ 1,290,800

55% on the excess over $3,000,000
60% on the amount between $10,000,000 and $21,040,000

DO ALL ESTATES PAY FEDERAL ESTATE TAXES?
No. The federal government has given every person in the United States an exemption of $650,000 for estate tax purposes. That means if your estate at the time of your death is less than $650,000 there will be no federal estate taxes due. In deciding whether your estate is greater than or less than $650,000, the government includes everything you own, even the face value of your life insurance policies.

PLEASE NOTE: As a result of the Taxpayer Relief Act of 1997, the Unified Gift and Estate Tax Credit exemption amount (identified above as $650,000.00) increases as follows:

YEAR EXEMPTION AMOUNT
1997 $600,000
1998 $625,000
1999 $650,000
2000 2001 $675,000
2002 2003 $700,000
2004 $850,000
2005 $950,000
2006 $1,000,000


IS THERE AN ESTATE TAX DEDUCTION FOR MARRIED PEOPLE?
Yes. In addition to the $650,000 personal exemption that everyone gets, the federal government has exempted all transfers of wealth between a husband and wife. This is called the Unlimited Marital Deduction and it means that regardless of the size of your estate, there will be no federal estate taxes levied when the first spouse dies and leaves the estate to the surviving spouse. Keep in mind, however, that this is merely a postponement of tax. There will be a tax on the estate of the surviving spouse when it passes to the children or other beneficiaries. Since in all probability the estate will continue to appreciate in value, taxes may be paid at a higher rate.
WARNING: Recent changes in the tax law have eliminated the unlimited marital deduction for surviving spouses who are not U.S. citizens. Without special planning, all non-citizen spouses are restricted to the tax-free transfer of the personal exemption amount from their deceased spouses.

DO NON-US CITIZENS OR RESIDENT ALIENS HAVE TO WORRY ABOUT RECEIVING FAVORABLE TAX TREATMENT FROM THE UNITED STATES GOVERNMENT? Yes. If a surviving spouse is a Non-US citizen or a resident alien, then they are not entitled to receive favorable tax treatment or benefit from the unlimited marital deduction (described on the prior page), unless the property passes to them in a Qualified Domestic Trust (“QDOT”). The purpose of the QDOT structure, is to ensure the U.S. government that it will retain its taxing jurisdiction over trusts assets that pass to Non-U.S. citizens or resident aliens, by requiring the appointment of a U.S. Trustee. By incorporating a QDOT provision into a Living Trust, Non-U.S. Citizens and resident aliens will benefit from the same favorable tax treatment received by U.S. citizens.

WHAT IF YOU HAVE A SMALL ESTATE, DO YOU NEED TO WORRY ABOUT ESTATE PLANNING?
Yes. While an estate under $650,000 is free from federal estate taxes, you will probably not avoid a living probate if you become disabled or a death probate when you die. Remember, probate and federal estate taxes have nothing to do with each other. Estate taxes are paid to the federal government for the right to transfer property at your death. Probate fees and costs are paid to the probate court, attorneys and the personal representatives of your estate for supervising the administration of your estate and distributing assets to your beneficiaries.

HOW CAN I CREATE A LIVING TRUST?
The first step is to make an appointment for a free, no obligation meeting with one of our estate planning professionals. You should be prepared to discuss the following issues:

  • How your assets are to be distributed after your death, and
  • The names of the people you want to manage your assets if you become mentally disabled, and after your death.