EstateTax

ESTATE TAXES

   Your Federal estate tax is a tax imposed by IRS based on the net value of the estate you leave behind for your beneficiaries. An estate tax return and payments are due within nine months from the date of your death. The estate of every person would have to pay estate taxes, if the estate is over certain exemption amounts set by the Congress.

   · Tax Exemption Amount

     For many years the exemption amount for each person used to be $600,000.00. Just recently, however, Congress passed new tax laws increasing the exemption amount incrementally every year until the federal estate taxes are completely repealed in the year 2010. This law has a sunset provision which provides that on December 31, 2010, this new law will no longer apply. The table below provides a summary of the tax exemptions allowed by congress for each individual under the new tax law:

              Year of Death           Estate Tax Exemption

             2000 and 2001                  $675,000.00
             2002 and 2003               $1,000,000.00
             2004 and 2005               $1,500,000.00
             2006 to   2008               $2,000,000.00
                     2009                       $3,500,000.00
                     2010                 N/A (Taxes Repealed)

     This year every U.S. Citizen has a lifetime estate tax exemption of $675,000. The exemption amount may be reduced further by the amount of any qualifying gifts you have made during your lifetime (gifts exceeding $10,000.00 in one year to one person). Any amount of your estate that is over $675,000 will be subject to estate taxes at your death. (The exemption may be slightly different for estates containing businesses that qualify under family-owned businesses.) If your estate is less than the amounts listed in the table, you need not worry much about estate taxes after your death.

     There is also an unlimited marital deduction for an estate which one spouse leaves to another U.S. Citizen spouse. That means there will be no estate taxes on assets and properties which one spouse leaves to the other, regardless of the value of those assets and properties. However, only U.S. Citizen spouses can take advantage of this exception. Assets can pass between spouses without incurring estate tax but doing so may not take advantage of the deceased spouse's $675,000 exemption amount.

    · Estate Tax Rates

     Estate taxes are progressive taxes and are one of the highest tax rates compared to other taxes. Only for 2000, estate taxes start at the rate of 37% for every dollar over $675,000.00 and go as high as 55% for estates which are over $3,000,000.00. The table below provides the current (year 2000) tax rates. These rates will be subject to change starting in 2002:

                         Taxable Estate                         Tax Rate (2001)

                                $675,000                                   37%
                                $750,000                                   39%
                            $1,000,000                                    41%
                            $1,250,000                                    43%
                            $1,500,000                                    45%
                            $2,000,000                                    49%
                            $2,500,000                                    53%
                            $3,000,000                                    55%

Example: The estate taxes for a net estate of $1,000,000 in the year 2000 will be $125,250.00 which is calculated as follows: The first $675,000 will be exempt, leaving $325,000 subject to tax. Using the table above, the amount between $675,000 and $750,000 (or $75,000) will be taxed at 37%. The amount between $750,000 and $1,000,000 (or $250,000) will be taxed at 39%. Therefore, this results in an estate tax liability of $125,250 on a net taxable estate of $1,000,000.

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