What is an estate tax?
An estate tax is the amount of taxes owed to the federal government upon your death. Your family’s tax liability will depend on two things: • How much your estate is worth • How much estate planning you accomplished during your lifetime No one wants to think about leaving their loved ones with a heavy tax burden, which is why it is so important to speak with your certified financial planner to begin the planning of your estate as soon as possible. Even if you don’t think that you have a large number of assets, you would be surprised at the amount that the value of your cars, stocks, bonds, property, retirement accounts, etc. will total once your financial planner calculates it for you. Fortunately, there are several ways to avoid estate taxes, and this article will discuss some of the options available to you. Avoiding Estate Tax Using Tax-Free Gifts You are allowed to give up to $11,000 per calendar year without paying gift tax to whomever you choose. This includes donations to charit
An estate tax is a tax that is imposed when property is transferred from a deceased individual to another individual, often a family member, without financial remuneration. Politically, the estate tax is a highly volatile subject which stirs passions on both sides. Some say it is like being taxed twice; others say it is a chance to tax what, essentially, becomes income added to an individual’s net worth. The estate tax is the tax that many also refer to as the death tax, simply because it is a tax that must be paid after a person dies. Of course, the dead person is not the person paying the tax, but rather it is paid by the person receiving property. In some cases, the tax may be paid by selling off at least a portion of the estate in order to cover the taxes. Some argue against the estate tax, saying that the person who acquired the estate already paid taxes while acquiring the land. In some ways, it is argued that it is double taxation. Others say it especially hurts farming states,
The Federal government may impose an Estate Tax on you if your taxable estate is over a certain value. The state in which you live in may do so as well. However, there is an unlimited marital deduction and you may leave an unlimited amount of property to your spouse if they are a citizen of the United States.
The federal government allows every person to give away, either through lifetime gifts or upon death up to $1 million without being taxed. This is known as your Lifetime Exemption. This Credit effectively shields $1 million of assets and changes in the upcoming years as outline above. Any assets amounting to more than $1 million are then taxed at a progressive Estate Tax. Certain transfers are not counted toward the $1 million such as a gift of $11,000 (in 2002 and 2003) or less made by you to any person per year, or gifts given to pay for tuition or medical expenses. However, the Internal Revenue Code allows any married person to gift, or leave at death, to their spouse an unlimited amount of assets in millions or billions, it makes no difference. This is called the Unlimited Marital Deduction. Because of this law, couples typically have reciprocal Wills which give their property to the other spouse, with the assets going to the children after the surviving spouse`s death.
