The Federal Estate Tax

Your estate isn’t liable for federal estate taxation unless it exceeds the available exemption amount. This magic number is the value of assets that each person may pass on to beneficiaries without paying federal estate tax. The Economic Growth and Tax Reconciliation and Relief Act of 2001 (EGTRRA) provides for a gradual increase in the exemption. It is $2,000,000 during 2008; $3,500,000 during 2009)

In addition, you can pass your entire estate, without any estate taxes, to your spouse. (This is called the unlimited marital deduction.) If you simply leave your estate to your spouse and don’t create an appropriate trust to take advantage of your, your spouse’s estate will pay taxes on any amount over the exemption amount when he or she dies.

To the extent your estate exceeds the available exemption, the federal estate tax rates start at 41 percent. The assets subject to tax at death may include:

• cash

• stocks and bonds,

• the family home,

• the family farm,

• life insurance,

• tangible personal property (such things as clothing, jewelry, furniture, art, china, power tools, computers, etc.),

• benefits under employee benefit plans and

• retirement assets such as IRAs, as well as other items that do not produce lifetime income.

In short, everything that you own is added up to determine your estate. This is how you may be richer than you think for tax purposes.