Taxation & Estate Planning

25 Things You Need To Know About The New Estate Tax Laws: 6-10

By Joel A. Schoenmeyer

A little background: the federal estate tax has two important components, the exemption amount and the tax rate. These components work together to determine how much federal estate tax is paid. To simplify, you look at what is being inherited at the death of the decedent, and compare it to the exemption amount. You generally exclude amounts inherited by the decedent's spouse or by charity.

6. The exemption amount for decedents dying in 2011 or 2012 is $5 million. So, to take an example:

John Smith is a widower with two kids, Sam and Dave. Sam and Dave are John's only beneficiaries under his Will. John leaves an estate worth $5 million when he dies on January 18, 2011. No federal estate tax will be due at John's death. If John's estate was instead worth $7 million given the above facts, an estate tax would be due on $2 million (the amount by which John's estate exceeded the exemption amount for 2011).

7. The $5 million exemption amount is a big increase from 2009, the last year in which there was an estate tax. (The exemption amount in 2009 was $3.5 million. That in itself was a big increase from 2001, when the exemption amount was $675,000.)

8. In 2013, the exemption amount will return to $1 million (barring future action by the Congress and the President).

9. The top estate tax rate in 2011 and 2012 will be 35%. Again, this is a big change from 2009 (when the top rate was 45%) and an even bigger change from 2001 (when the top rate was 55%).

10. In 2013, the top estate tax rate will return to 55% (barring future action by the Congress and the President).

Full post as published by Death and Taxes Blog on January 11, 2011 (boomark / email).