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Estate Tax

Will my estate have to pay estate taxes when I die?

Answer: "It's hard to say."

Why?

"Because the law is in a state of flux."

Currently, an estate is exempt from estate tax up to $2,000,000.

As the law now stands, in 2009, the exemption amount will go up to $3,500,000. In 2010, there will be no estate tax at all.

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JANUARY 2010 UPDATE: Actually, there is no update. Surprisingly Congress failed to act last year. So, the estate tax (and gift tax) is gone (at this point) for this year.

Will Congress act in 2010? Probably, maybe?? Could they pass a bill that enacts a retroactive estate tax going back to January 1, 2020. Maybe. Would it be challenged in court? Certainly. What would be the outcome? Hard to say.

As you can see, it's a mess right now as things are still very much up in the air. But, for now, officially, there is no estate tax -- this year. And, for now, the provisions of the 2001 Tax Act (estate tax cut) will no longer be effective on January 1, 2011 and so the tax rules that existed in 2001 will take effect again; therefore, (as of now) in 2011, federal estate tax will be assessed on property in excess of $1 million with a maximum tax rate of 55%.) So, if this stands as is, LOT's more people will be affected by the estate tax. More to come....

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So for tax planning purposes, 2010 is the optimal year to die!!

estate tax

But, alas, in 2011, the estate tax exemption amount is scheduled to go back to $1,000,000.

There have been unsuccessful attempts to amend the current law in various ways. And, it is beyond my ability to predict what will happen in the future to estate taxation. So, all we have to go on presently is the current law.

Given that state of affairs, perhaps the most reasonable course is to assume your estate will be exempt up to $1,000,000 and anything above that will be subject to a (rather draconian) estate tax rate of 50%.

And that is just the federal estate tax. You may also have a state estate or death tax and possibly even an additional "generation-skipping tax."

So, a threshold question to ask yourself is whether you will have assets worth $1,000,000 or more at death. To find out what assets are included in estate read Assets Subject to Estate Tax.

If so, you should give serious thought to how you could arrange your affairs in order to ensure the smallest estate tax bite possible.

Can a living trust be used to save estate taxes?

A living trust (credit shelter trust version) is one vehicle that can be used to limit the tax your estate might have to pay. There are other ways as well. To find out more, read Credit Shelter Trust.

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Assets Subject to Estate Tax |