Estate Taxes

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Federal law imposes taxes on an individual's estate. However, there are three permissible deductions/credits that can provide relief:

1. For married couples, at the death of the first spouse, there is an unlimited marital deduction for qualifying property left to the surviving spouse.
2. The law allows a full deduction from the estate for amounts distributed to a charitable beneficiary.
3. The law permits individuals, or in marriage, each spouse, a credit against taxes payable against their estate. This federal estate tax credit presently allows individuals to distribute $1.5 million tax-free to personal beneficiaries. In other words, in the absence of any estate planning, at the death of the second spouse (or at death for singles), federal law permits $1.5 million to be distributed to heirs free from estate taxes. Amounts above the $1.5 million threshold are taxed at a rate starting at 40%. In the case of married couples, this impact can be reduced substantially with appropriate estate planning, through the creation of a bypass trust. For more information on the bypass trust (click here)

Please note that legislation enacted in 2001 incrementally increases this exemption from $2 million in 2006 to $3.5 million in 2009. See details (click here). This legislation would eliminate all estate taxes in the year 2010. However, this is subject to what is called a "Sunset" rule, and therefore, unless Congress revises the law prior to 2011, the exemption will revert back to the $1 million level per spouse. It is our opinion that reinstatement is unlikely, as the incremental impact of the repeal would be a tax benefit to only an estimated 1 out of every 500 voters.

Therefore, at this time, we encourage individuals to be conservative in their approaches and for the longer term (10 years or more), assume an exemption in the range of $1 - $3.5 million.

Overview of Estate Planning
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