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Estate Planning/Estate And Gift Tax

Q. What are estate taxes?

A. A federal estate tax, and in some states, state inheritance taxes, may be assessed against property owned by a decedent at death. Estate taxes are graduated, that is, the taxes increase based on the value of assets of the estate.

Q. When is an estate subject to estate taxes?

A. For the year 1999, any estate value is greater than of $650,000 is subject to federal estate tax. The minimum size of an estate that is subject to estate taxes will vary depending on the year of death.

Q. Can an person make gifts during their lifetime to reduce or eliminate estate taxes?

A. Yes, gifts during ones lifetime are a valid method of lowering or avoiding inheritance taxes. Federal law has restricted the amount and types of gifts that can be exempted from an estate for tax purposes.

Q. If property given to a spouse is tax-exempt, why not leave the entire estate to a spouse?

A. While the belongings passing to a spouse are not taxed upon the death of the first to die, at the time of death of the surviving spouse, the estate may contain significant amount of assets and be subject to taxes at a very high rate. Instead of "loading" the surviving spouse's estate, it is often advantageous to leave a spouse only a portion of the entire estate and establish trusts to provide income to the surviving spouse. The trusts that provide only income to the spouse are ordinarily not part of the surviving spouse's estate and will not be taxed upon the survivor's death.

Q. What is the tax rate for estates?

A. To the level that the estate exceeds available exemptions, the estate may be taxed at somewhere between 37% to 58%. Inheritance taxes are paid before beneficiaries receive their share of the estate.

Q. What are state inheritance taxes?

A. A minority number of states impose their own inheritance taxes that are keyed into federal inheritance taxes. Establishing a bona fide domicile in a state that has no inheritance taxes and removing property from states that impose such taxes may avoid some or all state inheritance taxes.

Q. What is an estate tax return?

A. An estate tax return (IRS form 706) must be filed if the gross estate (entire value of the estate) exceeds $675,000. When required, the executor of the estate must file an estate tax return within 9 months of death.



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