Estate Tax
The E. Steven Lauer, P.A. law firm in Vero Beach answers frequently asked questions about estate tax, as well as outlines the benefits of using a professional to handle estate tax-related matters.
What is the estate tax? The Federal Estate Tax is money that the government collects when a person's assets are transferred after his or her death. Taxes are paid on the amount of the estate that exceeds the annual exemption established by Congress. Many states also impose their own estate or inheritance tax regulations, but at this time, Florida does not.
How is it calculated? The tax rate is currently 45 percent, with the tax amount based on the value of the estate. The way in which it is calculated, however, can vary from one year to the next, depending on changes in tax legislation. In 2008, for example, the exemption was $2 million; in 2009, it is $3.5 million; in 2011 and beyond, it is scheduled to be $1 million. The exemption has been repealed for 2010, although many experts expect Congress to vote for change on this exemption.
Who has to pay it? In theory at least, anyone who inherits financial assets, real estate, or other property pays the tax. In reality, according to the Tax Policy Center, the tax burden falls on the top ten percent of income earners, with nearly half of the tax paid by the top .01 percent.
Reducing your estate tax burden
Can a professional help minimize or avoid the tax? In most cases, yes. There are a number of strategies employed to reduce estate taxes, including:
- Leaving assets to beneficiaries in a will
- Establishing a trust fund to transfer assets to family members
- Gifting money to family during a client's lifetime
- Opening a college savings fund
- Purchasing annuities or "second-to-die" life insurance policies for spouses
- Donating money or property to recognized charitable organizations
