Estate Taxes

Estate Taxes

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Federal law imposes taxes on an individual's estate. However, three permissible deductions/credits can provide relief:

For married couples, at the death of the first spouse, there is an unlimited marital deduction for qualifying property left to the surviving spouse.

The law allows a full deduction from the estate for amounts distributed to a charitable beneficiary.

The law permits individuals, or in marriage, each spouse, an exemption against taxes payable against their estate. This federal estate tax exemption presently allows individuals to distribute $5.49 million tax-free to personal beneficiaries. In other words, federal law permits $5.49 million to be distributed to heirs free from estate taxes, $10.98 million for married couples. Amounts above this threshold are essentially taxed at a rate of 40%. For more information on the bypass trust

Please note that legislation enacted in 2001 incrementally increased this exemption from $1 million in 2001 to $3.5 million in 2009. This legislation eliminated all federal estate taxes in the year 2010. Legislation enacted in December 2010 reinstated the estate tax and set the exemption amount at $5 million (indexed for inflation); but this legislation was temporary and scheduled to sunset on December 31, 2012.

On January 1, 2013, Congress passed legislation that left the exemption unchanged at $5.25 million (indexed for inflation) in 2013 and raised the estate tax rate from 35% to 40%. It is very hard to predict what action Congress will take in the near future. Therefore, at this time, we encourage individuals to be conservative in their estate planning, and assume an exemption in the range of $1 - $5 million.

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