Tax Issues
The taxes applicable to estates (federal estate tax, state
estate and/or inheritance tax, generation skipping transfer
tax, gift tax, fiduciary income tax) are complex, always changing
and frequently avoidable. If your estate exceeds $1 million
(see below chart for scheduled increases in the exclusion
amount), it is imperative that you get professional advice
in preparing your estate plan.
As a very general overview, under the federal estate tax
laws, an unlimited amount can be passed tax free to a U.S.
citizen spouse under the “unlimited marital deduction”
and an amount equal to the “applicable exclusion”
can be passed to a nonspouse beneficiary free of the federal
estate tax. There are also exemptions and exclusions from
the gift and generation skipping transfer taxes. The following
chart sets forth the estate tax applicable exclusion, the
gift tax exemption, the generation skipping transfer tax exemption
and the estate and gift tax rates during the phase out period
of 2002 – 2010 and the rates when the Economic Growth
and Tax Relief Reconciliation Act of 2001 is repealed in 2011
(for more on the Act, see the following sections on planning
for mid-size and large estates).
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Estate, Gift and GST Tax Exemption Amounts
And Highest Estate, Gift and GST Tax Rates
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Year |
Estate Tax Exemption Amount |
Highest Estate and GST Tax Rate |
Gift Tax Exemption Amount |
Highest Gift Tax Rate |
GST Exemption Amount |
|
2002 |
$1,000,000 |
50% |
$1,000,000 |
50% |
$1,060,000 |
|
2003 |
$1,000,000 |
49% |
$1,000,000 |
49% |
$1,060,000 |
|
2004 |
$1,500,000 |
48% |
$1,000,000 |
48% |
$1,500,000 |
|
2005 |
$1,500,000 |
47% |
$1,000,000 |
47% |
$1,500,000 |
|
2006 |
$2,000,000 |
46% |
$1,000,000 |
46% |
$2,000,000 |
|
2007 |
$2,000,000 |
45% |
$1,000,000 |
45% |
$2,000,000 |
|
2008 |
$2,000,000 |
45% |
$1,000,000 |
45% |
$2,000,000 |
|
2009 |
$3,500,000 |
45% |
$1,000,000 |
45% |
$3,500,000 |
|
2010 |
Repeal |
None |
$1,000,000 |
35% |
Repeal |
|
2011
|
$1,000,000 |
55% |
$1,000,000 |
55% |
$1,060,000
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In addition to the above gift tax exemption there is a $10,000
per recipient annual gift tax exclusion ($20,000 for each
recipient for gifts by married couples). Because this amount
is indexed for inflation it will increase over years to come.
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