What are death taxes?
In addition to the expense and delay of probate, your family may also be liable for death taxes at the time of your death. 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 remains one of the largest taxes a family will ever be required to pay. It is a tax on your right to transfer property to others at the time of your death. Currently, the federal estate tax rates begin at 37% and quickly rise to 55% of every dollar in your estate over the amount of the exemption.
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. The federal estate tax is one of the largest taxes a family will ever have to pay. It’s 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 55% of every dollar in your estate over the amount of the exemption.
Separate from the expense and delay of probate, your estate may also be liable for death taxes. These taxes (also called estate or inheritance taxes) are paid on transfers of property at death. There are two types of death taxes: the federal estate tax and the state death tax. California’s estate tax, known as a “pick-up” tax, is equal to a credit given by the federal government for payment of state death taxes attributable to assets located in California. In other words, the overall amount of estate tax due is the same; California merely takes a share of the federal tax. However, if you own certain assets (i.e., real property) in another state, that state will take a percentage of the “pick-up” tax and California will take the balance. In addition, other states may assess a separate inheritance tax, over and above the “pick-up” tax. Beginning January 1, 2002, the state death tax credit was reduced by 25% for decedents dying in 2002. That credit will be reduced by 50% for decedents dyi
Death taxes (also called estate taxes or inheritance taxes) are taxes on transfers of property at your death. Each person is allowed an exclusion from death tax. The following table shows the amount that can be excluded: YEAR OF DEATH EXCLUSION AMOUNT 2000 $675,000 2001 $675,000 2002 $700,000 2003 $700,000 2004 $850,000 2005 $950,000 2006 & thereafter $1,000,000 In other words, if your estate is worth less than the exclusion amount in the right hand column applicable to the year of your death, your estate would not be subject to death taxes. If your estate exceeds the exclusion amount at the year of your death, your estate is subject to death taxes. However, proper planning can reduce or even eliminate the death taxes. In valuing your estate, do not forget to count life insurance and retirement benefits. 2. How Can A By-Pass Trust Help Reduce Death Taxes? If the value of your estate is over the exclusion amount and you are married, a common plan is to use both your exclusion amount and
Death taxes are simply federal and state taxes that apply to the transfer of your property upon your death. Currently, each person can transfer $3.5 million of his or her assets tax-free upon death. So unless you have a significantly sized estate, over $3.5 million, you probably will not owe death taxes. Federal Estate Tax. A federal estate tax is imposed upon the fair market value of the total of your assets less certain deductions. The easiest way to compute the value of your assets is to add your net worth to the face amount of life insurance. You will pay a federal estate tax only if these assets are over the IRS exclusion amount. The federal estate tax can be as high as 45%. Both probate and non-probate property assets are subject to tax. This includes joint tenancy assets, living trust assets, life insurance, and retirement plan proceeds. A common misconception is that life insurance proceeds are not taxed. As discussed above, life insurance proceeds are “non-probate” property an
