Estate Taxes
February 7, 2005 10:47 AM   Subscribe

Estate Tax Filter
I've been trying to figure out how much someone can inherit before having to pay a whole mess of taxes on the money. I've been trying to use the IRS Estate and Gift Tax page but am just as confused as before. Can anyone help me out?
posted by fenriq to Work & Money (7 answers total) 1 user marked this as a favorite
 
I'm not a lawyer, but I've been through this a couple of times (unfortunately). My best advice: if the estate is over $100,000, go talk to a lawyer. There are IRS regulations, and then there are the ways to bend and break them that lawyers can best explain.
posted by Daddio at 11:12 AM on February 7, 2005


From your link:

For Gift Tax Purposes in years 2004 and 2005 the Unified Credit is $345,800, the Applicable Exclusion Amount is $1,000,000. For Estate Tax Purposes in years 2004 and 2005 the Unified Credit is $555,800 and the Applicable Exclusion Amount is $1,500,000.

Of course, the recipient of the money doesn't pay tax, the estate does.

Also worth noting-- those amounts are per person, and there is no estate tax on transfers to surviving spouses.

I am not your lawyer/accountant/tax professional/financial advisor. This is not advice.
posted by trharlan at 11:16 AM on February 7, 2005


Also, I should explain how the unlimited spousal deduction works:

In a nutshell, with no estate plan in place-- a husband dies, leaves everything to his wife, she dies a year later, and only $1,500,000 passes to the kids estate tax free.

Estate plan in place-- husband and wife establish A-B trusts, with $1,500,000 in each. Husband dies, wife can use her husband's trust for income and use her own trust however she would like. She dies a year later, and $3,000,000 passes to the kids estate tax free.

Remember that inherited IRAs are taxable to those who withdraw from them. In other words, you can escape estate tax but still be responsible for income tax on some assets.

Check out ILITs and CRUTs for other estate tax minimization tools.
posted by trharlan at 11:23 AM on February 7, 2005


"Although every estate with more than $1 million in gross assets must file an estate tax return, the taxable amount is reduced by deductions for funeral expenses, administrative expenses, debts, charitable contributions, and transfers to one's spouse. As a result, less than half of all estates required to file a [Federal] return are actually taxable. "

[The actual dollar amount may have risen slightly because due to recent tax changes.]

And, as noted above, it's the estate that owes (and pays) taxes. Recipients owe nothing.
posted by WestCoaster at 1:12 PM on February 7, 2005


Correct above that the limits on estate tax are per decedent, not per recipient. Note, however, that this is the opposite of the rule for the gift tax, where the annual $10,000 limits are per recipient, NOT per giver. (Annual maximum gifts to everyone in the family are an important part of estate planning for the moderately wealthy.)

While IAAL, IANATEL (I am not a trusts and estates lawyer) so take this with a grain of salt: it is a good idea, unless the high net worth person is on his or her death bed, NOT to make expensive or irrevocable estate planning decisions right now, because of the possibility this year or next that the estate tax will be permanently repealed or a much higher exemption permanently enacted. (Right now the exemptions are increasing each year through 2009, with no estate tax at all in 2010, and then the estate tax is reimposed with the old, low, exemption for 2011.)

Also, note that four future years of gift tax exemption eligibilty can be borrowed for gifts to 529 accounts, up to $55,000 per giver per recipient. A married couple with five grandchildren could give $550,000 in one big old generation skipping chunk, relieving their children of all of their college finance obligations for their children at once, if the kids are young enough for a $110,000 gift to grow to the full cost of college and graduate school.
posted by MattD at 1:47 PM on February 7, 2005


Also worth noting, a few states do have an additional inheritence tax that the recipient pays.
posted by keep the aspidistra flying at 4:45 AM on February 8, 2005


IANAL blah, blah. A good way to get around the Estate Tax is through a Family Limited Partnership.

This is a good link from Bankrate which has a chart that explains the Estate Tax. Note that under the legislation that has been enacted, the tax is elminated during 2010 and than reverts back to $1 million in 2011.
posted by mlis at 5:58 AM on February 8, 2005


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