The "estate tax" is the tax that the government imposes on assets transferred to your beneficiaries upon your death. Taxable assets may include real estate, shares, money in a bank account and other valuables. It does not seem that the property tax disappears definitively. However, with careful planning, you can significantly reduce taxes.
Americans have been planning their estates in accordance with the Economic Growth and Tax Relief Act since 2001. This law is important because it has amended 441 tax laws and represents the largest inheritance tax reduction in 20 years. Here is an overview of what the law covers:
Lower tax rate
The law reduces the rate of taxation of the following taxes:
- The marginal property tax; the tax levied on your estate upon your death. Note: This tax can be a burden to the heirs if you die and leave assets for them, but no money funds to cover the tax on this asset. For example, if you leave a house, the government can tax up to 55% of its value. Your heirs will have to find a way to pay these taxes if he wants to keep them. The lower tax rate of the law helps to reduce the amount of taxes on assets such as your home, so that your heirs are not overburdened or forced to sell the asset quickly at a modest price so that funds to pay taxes are available.
- Generation jumping the transfer tax (TPS); the tax relief you are given if you transfer assets to a grandchild or a great-grandchild.
- Gift tax; the tax on donations given as a gift before dying.
Increase in asset transfers
The law increases the amount of assets that can be transferred at death without tax on the estate or the generation.
Temporary tax waiver
In 2010, the tax on the generation leap will be repealed. This repeal means that grandparents can donate a portion of their assets directly to their grandchildren and great-grandchildren without having to lose some of these assets in taxes.
For the year 2010, the estate tax will also be repealed for one year. If you die in 2010, you can give all of your estate to your heirs without worrying about paying your taxes. However, if you die in 2011, only one million dollars is eligible to be transferred to your heirs without being taxed.
Since inheritance tax will not be permanently repealed in the near future, it is important that you plan your estate so that your wishes can be achieved in the most efficient way possible, that is the year of your death.
Understanding the complicated tax system can be a challenge for someone who is not familiar with tax law. If you plan to protect and distribute your estate, we recommend that you consult a lawyer. Your lawyer can explain to you the necessary steps so that your heirs receive as much as possible your assets.