Estate taxes can be onerous, but not all estates will be taxed. New tax laws enacted in 2001 subject all assets to federal estate taxes, but provide a threshold amount only the assets over which will be subject to the federal tax. The 2001 tax law creates an ascending federal tax exemption (see Table, below) culminating in 2010, when estates will be entirely free from federal taxation. Our government is unlikely to completely eliminate the estate tax for long, though, for the estate tax law expires at the end of 2010, when the estate tax rules will revert to 2002 levels unless Congress takes proactive steps to extend or modify the tax law.
Besides the federal exemption, which along with the New York State exemption is known as the Unified Tax Credit, you may take advantage of other exemptions which may avoid federal estate taxes. A spouse can leave any amount of property to a spouse free of federal estate tax and gifts to charities are not subject to federal estate taxes.
In addition, lifetime gifts can help reduce your taxable estate. Presently, a person may gift $12,000 per year ($24,000 for a married couple) to anyone without incurring federal or New York gift tax and without reducing the unified credit.
There are many tools at your disposal to help reduce or avoid estate taxes, but proper planning is essential to ensure your objectives are realized.
|
Tax Year |
Tax Rate |
Unified Credit |
|
2001 |
37-55% |
675,000 |
|
2002 |
41-50% |
1,000,000 |
|
2003 |
41-49% |
1,000,000 |
|
2004 |
45-48% |
1,500,000 |
|
2005 |
45-47% |
1,500,000 |
|
2006 |
46% |
2,000,000 |
|
2007 |
45% |
2,000,000 |
|
2008 |
45% |
2,000,000 |
|
2009 |
45% |
3,500,000 |
|
2010 |
N/A |
N/A |