By Rafael Ruano
Planning for your estate starts with knowing the basics.
As an estate planning attorney, discussions about estate taxes, or "the death tax," usually require me to spend time explaining the tax system and defining terms.
Since President Barack Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act in December 2010, the system has—temporarily—changed, and a few new terms have been added to the lingo.
The following is a glossary of the basic estate tax terms needed to understand this often confusing and fluid issue.
Importantly, the new federal estate tax law makes significant changes, but only for 2011 and 2012.
In 2013, the law reverts back to what it was in 2001—unless Congress acts and either extends the new set of laws or changes them yet again (see page 34 for details). While we have a set of rules, the likelihood of the rules staying the same for any length of time depends on the political and eco-nomic factors that will play into how Congress acts or fails to act before 2013.
Rafael Ruano is an estate planning attorney with Goyette & Associates in Gold River, Calif. Contact him at firstname.lastname@example.org or (888) 993-1600.
The sum of all assets and debts held (owned) by an individual during his or her life or at the time of his or her death.
Estate Tax Exemption
For 2011 and 2012, the federal estate tax exemption is $5 million, and the estate tax rate for estates valued at more than this amount is 35%. This means that an individual can transfer up to
$5 million without incurring any federal estate taxes. A married couple can thus pass $10 million without incurring estate taxes (see "Portability"). Like the estate tax exemption, the gift tax exemption and generation skipping transfer tax exemption are $5 million each, and the tax rate for both of these taxes is also 35% (see "Generation-Skipping Tax" and "Gift Tax").
Tax that is assessed on property that is passed to a generation that is two or more levels below the generation of the person who is making the transfer. For example, a transfer of property from a grandparent to a grandchild while the child of the grandparent is alive would be subject to the generation-skipping transfer tax. The $5 million federal estate tax exemption applies.
- Legacy Project 2011 Report