Estate Tax in the United States

11 Jan

According to IRS, the estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in. The estate tax is based on the fair market value of your assets on the date of death.

Since the 1990s, opponents of the tax have used the derogatory term “death tax”.

If the value of your estate didn’t exceed $3.5 million in 2009, or $5 million in 2010, 2011 and 2012 tax years, then all the inherited assets will pass to your heirs free from  federal estate taxes. The estate tax, have been indexed for inflation for the 2012 tax year such that it will be adjusted to $5.12 million beginning on January 1, 2012.

The $5 million estate tax exemption and 35% estate tax rate are only scheduled to be in effect until December 31, 2012.  On January 1, 2013 the federal tax exemption will be decreased to $1 million and the estate tax rate will increase up to 55%!

What can you do to reduce your potential estate tax?

You can give money away during your lifetime or leave certain amounts to your heirs that are exempt from taxation. In 2011 and 2012 you can give $13,000 to as many people as you want, or you can make the following unlimited donations without triggering the gift tax:

–    Gifts to charity
–    Gifts to a spouse
–    Gifts to a political organization
–    Gifts of educational expenses (must be made directly to the educational institution for tuition only).
–    Gifts of medical expenses (must be  paid directly to the medical facility)

In addition to the federal government, many states also impose an estate tax, called either an estate tax or an inheritance tax.

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2 Responses to “Estate Tax in the United States”

  1. Caitlin Durkin January 12, 2012 at 9:18 PM #

    This is really good information. I don’t know anything about taxes–except that I don’t like them. I have heard about this estate tax before and always thought it was highly unfair to tax someone upon receipt of inheritence. The person that made all that money already paid taxes on it, on his land, his income, state taxes etc. So to me that looks like double dipping for tax collectors.

    Thanks for the information on how to avoid them!

  2. Monika Hatfield January 13, 2012 at 10:47 AM #

    Thank you Caitlin for your comment.
    I agree with you. The estate tax adds yet another layer to the already heavy taxation of savings and investment. Also, the time of death doesn’t seem to be an appropriate time to impose a tax.

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