Your estate owes federal estate tax on the value of your taxable estate if the estate is larger than the amount you are permitted to leave to your heirs tax free.
That amount, which is set by Congress, is $2 million for 2006, 2007, and 2008 and is scheduled to increase to $3.5 million in 2009.
Under current law, the estate tax will be eliminated in 2010. Without further Congressional action, the tax will be reinstated in 2011 at 2002 levels. However, modifications may be made before that date.
If your estate may be vulnerable to these taxes, which are figured at a higher rate than income taxes, you may want to reduce its value. You could do this by using a number of tax planning strategies, including making nontaxable gifts and creating irrevocable trusts.
Further, if you're married to a US citizen and leave your entire estate to your spouse, there are no estate taxes, no matter how much the estate is worth. However, estate taxes may be due when your surviving spouse dies.
You may also face estate taxes in your state.
- Browse Related Terms: Back-up withholding, Custodial account, Estate, Estate tax, Gift tax, Income, Income in respect of a decedent, Income stock, National debt, Qualified domestic trust (QDOT), Revocable trust, Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA)
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