Tuesday, December 22, 2009

Today's NJ Probate Answers

Do all estates pay Federal Estate Taxes?

No. The federal government has given every person in the United States an exemption for estate tax purposes. Presently, the exemption is $2,000,000 in 2006. That means if your estate at the time of your death is less than the exemption, there will be no federal estate taxes due. In deciding whether your estate is greater than or less than the exemption, the government includes everything you own, even the face value of your life insurance policies.

The exemption will increase to $3,500,000 in 2009. In 2010, the estate tax is repealed. However, in 2011, the estate tax comes back with an exemption of only $1,000,000 and a maximum tax rate of 55%.

Is there an Estate Tax Deduction for married people?

Yes. In addition to the phased-in personal exemption that everyone gets, the federal government has exempted all transfers of wealth between a husband and wife. This is called the Unlimited Marital Deduction and it means that regardless of the size of your estate there will be no federal estate taxes levied when the first spouse dies and leaves the estate to the surviving spouse. Keep in mind, however, that this is merely a postponement of tax. There will be a tax on the estate of the surviving spouse when it passes to the children or other beneficiaries. Since in all probability the estate will continue to appreciate in value, taxes may be paid at a higher rate.

WARNING: There is no unlimited marital deduction for surviving spouses who are not U.S. citizens. Without special planning, all non-citizen spouses are restricted to the tax-free transfer of the personal exemption amount from their deceased spouses.

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