If the value of your estate exceeds the applicable
exclusion limit in the year of your death, you must
file
IRS Form 706. (Generation-skipping
tax is the tax owed on property left to
grandchildren or great-grandchildren.)
For 2004, the applicable exclusion limit is $1.5
million and maximum tax rate is 48%. The following
table shows applicable exclusion limits and maximum
tax rates through 2011. Future tax-law changes may
affect these figures:
| Year |
Applicable
Exclusion
Limit |
Maximum
tax rate |
| 2003 |
$1
million |
49% |
| 2004 |
$1.5
million |
48% |
| 2005 |
$1.5
million |
47% |
| 2006 |
$2
million |
46% |
| 2007 |
$2
million |
45% |
| 2008 |
$2
million |
45% |
| 2009 |
$3.5
million |
45% |
| 2010 |
Repeal of
estate tax |
35% (gift
tax only) |
| 2011 |
$1
million |
55% |
The 2001 tax law may make estate planning even more
complex than it already can be. For one thing, the
law in its current version is set to expire at the
end of 2010. Other aspects of estate planning
include:
Unexpected events. In the event you
are impaired from a disease or accident, you may
wish to arrange for key financial decisions to be
made on your behalf. You can establish a
living will,
power of attorney agreement or
revocable living trust.
Marital deduction. The
marital deduction allows you to transfer to your
spouse the entire value of your estate free of
estate taxes. The marital deduction is a
tax-deferral rather than tax-avoidance
strategy. When the surviving spouse dies, his or her
estate (the combined value of both estates) may be
liable for estate taxes.
Gifting. Beginning in 2003, you can
give up to $11,000 to each individual or
charitable organization in a year without paying
gift taxes. (The recipient does not pay taxes on
the yearly limit of $11,000.) There is no yearly
limit for qualified educational expenses. Gifting
lowers the value of your estate and distributes your
wealth while you are living. Gifts made to
charitable organizations may be
tax-deductible, but gifts to your
heirs are not tax-deductible.
Unified tax credit. The
unified credit is a cumulative
tax credit. If you give more than $11,000 to an
individual or charitable in a year, taxes owed on
amounts that exceed the $11,000 per-person limit are
subtracted from your
unified credit. To record gifts in excess of the
yearly limit, complete
IRS Form 709, which is the sister of Form 706.
(Form 706 is for estate tax and Form 709 is for gift
tax.)
The above information is educational and should not
be interpreted as financial advice. For advice that
is specific to your circumstances, you should
consult a financial or tax adviser.
Retirement Planning:
Estate Planning & Taxes
