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| Credit Answers > Debt Resources > Estate Planning > Estate Taxes |
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As you get older and earn more, you're likely to accumulate wealth that comes from saving and investing. A major first step in accumulating wealth may be the
purchase of a home. You may also contribute diligently to an IRA, 401(k) plan or similar tax-deferred account.
Over time, these assets appreciate in value, increasing your wealth and personal net worth. When you die, this accumulated wealth is called your estate.
There are several ways in which you can manage your estate: You can set up a will or trust, contribute to a charitable organization, or establish your own endowment or foundation.
You can give away cash or other property to your children, grandchildren or other heirs and beneficiaries.
Your gross estate and taxable estate are different measures of your estate value. However, it's your taxable estate that determines the amount of estate tax your estate may owe.
Estate taxes are a part of the federal government's transfer-tax system, a system aimed at taxing the value of property as it flows from a deceased party ("decedent") to the
surviving heirs. Since estate taxes are levied on the transfer of a deceased person's estate, they are sometimes called "death taxes."
You can deduct some items from a gross estate in order to calculate your taxable estate. These items include funeral expenses paid by your estate, debts you owe at the time of your
death and the marital deduction. The marital deduction is a tax-free transfer of your assets to your surviving spouse. When he or she dies, the surviving estate becomes liable for
estate taxes.
To the extent that you have any of your gift tax unified credit left over (which is used to offset gift taxes while you are alive), your heirs may use this credit to reduce the
amount of estate tax owed.
The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually phases out the estate tax. Consistent with the new tax law, the tax credit for state death taxes was also
phased out and eliminated beginning with the 2005 tax year.
In fact, the estate tax will be eliminated in 2010 albeit for just one year. On Dec. 31, 2010, a "sunset" provision in the tax law means that its statutes, including those affecting
the estate tax, expire. As a result, the estate tax is scheduled to revert to levels that existed when the law was passed.
Until 2010, you may still be liable for estate taxes if the value of your estate exceeds the applicable exclusion limit in the year that you die. In that event, the executor of your
estate must file IRS Form 706.
For 2008, the applicable exclusion limit is $2 million and maximum tax rate is 45%. 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 |
| 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 | 55.00% |
The above information is educational and should not be interpreted as legal advice. For advice that is specific to your circumstances, you should consult a legal
adviser.
You will see from the table above that the gift tax remains in 2010.
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