Will I have to pay federal estate taxes?

  1. Exemption Amount

    For deaths occurring in 2004 and 2005 each individual (or couple) is entitled to an exemption of $1.5 million. Thus no federal estate tax would be due if someone died this year with a net worth that does not exceed $1.5 million. This exemption amount will gradually increase as follows:

    Calendar Year of Death Exemption Amount
    2006-2008 $2 million
    2009 $3.5 million

    For the year 2010 there will be no estate tax at all, but for the year 2011 and each year thereafter, the estate tax comes back and the exemption amount will be only $1 million, barring any subsequent legislation before that time.

  2. Federal Estate Tax Rates

    Federal estate taxes currently start at 37% and are imposed only on the excess over the applicable exemption amount. For example, for an individual who has a net worth of $1.6 million and dies in 2004, his or her estate would pay a tax of 37% of $100,000 (the difference between $1.6 million and $1.5 million) which would amount to

  3. Calculating your Net Worth for Federal Estate Tax Purposes

    You can use the assets and liabilities worksheet available on my website ( PlanoWills.com ) to determine your net worth. Note that your net worth for federal estate tax purposes includes all probate and non-probate assets (see above under the question "What property is controlled by my will?"), including the face value of all life insurance policies.

  4. The Marital Deduction

    The "marital deduction" provides that if one spouse dies, there is no estate tax imposed when the surviving spouse inherits the deceased spouse's estate, as long as the surviving spouse is a U.S. citizen. On the death of the second spouse, however, the surviving spouse's entire estate would be subject to estate tax unless certain steps were taken prior to the death of the first spouse to protect the couple's estate. For example, if the couple's wills prepared before the death of the first spouse provided for "bypass" or "credit shelter" trusts, then each spouse can preserve his or her individual exemption amount.