Will the Estate Tax Ever Go Away?
Will the Estate Tax Ever Go Away?
Thomas McNally
The "Estate Tax" is the tax that the government puts on the assets that are transferred to your beneficiaries when you die. Taxable assets can include real estate, stocks, money in a bank account, and other valuable belongings. It does not look like the estate tax will permanently go away. However, with careful planning, you can reduce taxes substantially.
Americans have been planning their estates in accordance with the Economic Growth and Tax Relief Act since 2001. This Act is important because it changed 441 tax laws and was the biggest estate tax reduction in 20 years. Here is an overview of what the Act covers:
Lower Tax Rate
The Act lowers the tax rate on the
following taxes: - The marginal estate tax; the tax levied on your estate when you die. Note: This tax can be a burden on heirs if you die and leave behind assets for them, but no monetary funds to cover the tax on that asset. For example, if you leave behind a home, the government might tax up to 55% of its value. Your heirs will have to find a way to pay those taxes if he or she wants to keep it. The Act's lower tax rate helps to decrease the amount of taxes on assets such as your home so that your heirs are not overburdened, or forced to quickly sell the asset at a low price so funds to pay taxes are available.
- The generation skipping transfer tax (GST); the tax break given to you if you are transferring assets to a grandchild or great-grandchild.
- The gift tax; the tax levied on assets that are given away as gifts before you die.
Increased Asset Transfers
The Act increases the
amount of assets that can be transferred at death without the estate or generation-skipping tax.
Temporary Tax Repeal
In the year 2010, the generation
skipping tax will be repealed. This repeal means that grandparents can gift portions of their assets directly to their grandchildren and great grandchildren without having to lose a portion of those assets to taxes.
For the year 2010, the estate tax also will be repealed for one year. If you die in the year 2010, you can give your entire estate to your heirs without having to worry about paying any taxes. However, if you die in 2011, only $1 million is eligible to be passed on to your heirs without being taxed.
Because the estate tax will not be permanently repealed within the foreseeable future, it is important that you plan your estate so that your desires can be carried out in the most efficient manner, regardless of the year of your death.
Understanding the complicated tax system can be a challenge for someone not versed in tax law. If you are planning your estate protection and distribution, we recommend meeting with an attorney. Your attorney can walk you through the steps needed to ensure that your heirs receive as much of your assets as possible.
About the author:
Thomas McNally is the staff writer at the National Directory of Estate Planning, Probate & Elder Law Attorneys. McNally stresses the importance of finding a qualified estate planning attorney to ensure that your estate passes to whom you want, when you want, and is carried out in the manner you've chosen.
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