FAQ:

What is the current federal estate tax law?

A federal estate tax is levied on the transfer of our assets to your heirs after your death. For deaths occurring in 2005, a federal estate tax in not due unless your total estate, including life insurance and retirement plan benefits, is over $1.5 million. This tax exempt amount, called the applicable exclusion amount, was $675,000 in 2001 and $1 million in 2002. The applicable exclusion amount will increase in 2006 to $2 million and again in 2009 to $3.5 million. Under the current federal law, the entire estate tax is eliminated in the year 2010. However, there is a sunset provision on the law that will cause the federal estate tax to return again in 2011 with an applicable exclusion amount of only $1 million. Most experts expect Congress to change the law to avoid such drastic changes in the law in 2010 and 2011. However, there is no way of predicting what the law will be.

In addition to the applicable exclusion amount, a married person can leave an estate of any size to a spouse, provided the spouse is a U.S. citizen, without any estate taxes. However, leaving your full estate to your spouse will merely defer estate taxes until the death of the spouse.

Tax rates for estates over $1.5 million start at 37 percent and quickly rise to 47 percent of the wealth that is subject to taxed. Because estate taxes are due within nine months of death, a failure to plan can lead to forced sales of assets to provide liquidity.

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