Articles

Estate Taxes

Estate taxes, according to a survey we performed last year, are the number one reason people are interested in preparing a revocable living trust. This shows that estate taxes are of great concern to most people who plan their estates. Estate taxes should also be of concern to many people who don’t plan their estates as well, they just don’t realize it.

The U.S. government imposes a tax on the transfer of your property to others both during your lifetime and when you pass away. This tax is known as the Unified Gift and Estate Tax. This is a penalty that heirs pay the federal government to transfer wealth. Taxes on what we leave to our families are nothing new—even ancient Egyptians paid taxes on the transfer of wealth 2000 years ago.

Congress has temporarily enacted estate tax laws since 1797, especially during times of war. The birth of the federal estate tax as we know it happened in 1916. Modern-day estate tax was created by Congress to encourage the redistribution of wealth. Critics then, as well as today, say the law exists solely to generate revenue for the government.

The rate of estate taxes has typically been very high. In 2005, it’s 47 percent, down from a whopping 55 percent in 2001. So, even with these decreases in estate taxes, if you die this year, your heirs could lose a bundle.

In 1976, 1981, 1986 and then in 2001, Congress extensively overhauled the federal estate and gift tax laws. With the exception of a law providing for a marital deduction in 1948, these were the first major changes in these laws since 1942. As a result, death tax payments were assessed only against the wealthy and the moderately wealthy. With the new laws, smaller estates aren’t subject to inheritance taxes.

Since estate taxes can cost families a lot of money upon the death of a loved one, much of the estate planning process focuses on reducing or eliminating taxes. Knowing the basic principles about estate taxes will help you better understand your attorney’s recommendations so you can make informed decisions. To learn more about estate taxes, follow the links below.

The Estate Tax Debate
Since Congress changed the tax laws, there has been much debate about whether this is a good plan or not. Learn more about this here.

Who Pays Estate Taxes
Learn what the financial requirements are for owing estate taxes, as well as who is responsible for paying estate taxes.

How Estate Taxes Work
To be able to make the best decisions regarding investments and other ways to reduce estate taxes, you must first understand how they work. Learn how estate taxes work here.

Reduce Estate Taxes Through Trusts
There are several different types of trusts that can help reduce estate taxes. Learn what these trusts are and how they work here.

Lower Estate Taxes
While trusts can help reduce estate taxes, there are also a few other ways to lower estate taxes. Learn these methods here.