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
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:
1) 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.
2) The generation skipping transfer tax (GST); the tax break given to you
if you are transferring assets to a grandchild or great-grandchild.
3) 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In the year 2010, the generation skipping tax will be repealed.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For the year 2010, the estate tax also will be repealed for one year.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
Because the estate tax will not be permanently repealed within the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.