Estate Tax Laws
Explanation of U.S. Estate Tax Laws
The U.S. estate laws have been in a prolonged state of uncertainty for over ten years. The same is true for the U.S. gift tax and GST tax laws, which are inherently related to the estate tax (they are all federal excise taxes on your "right" to make gratuitious transfers wealth in this country.) Due to this uncertainty and the extremely punitive nature of the estate tax, those families who have accumulated sufficient wealth to have estate tax exposure should exercise due care in seeking an attorney who specializes in estate tax planning.
| Year |
Estate Tax Max Rate |
Estate Tax Exemption Amount |
Gift Tax Max Rate | Gift Tax Exemption Amount | GST Tax Flat Rate | State Death Tax |
| 2001 | 55% | $675,000 | 55% | $675,000 | 55% | 100% Credit |
| 2002 | 50% | $1,000,000 | 50% | $1,000,000 | 50% | 75% Credit |
| 2003 | 49% | $1,000,000 | 49% | $1,000,000 | 49% | 50% Credit |
| 2004 | 48% | $1,000,000 | 48% | $1,000,000 | 48% | Deduction (No Fla.) |
| 2005 | 47% | $1,500,000 | 47% | $1,000,000 | 47% | Deduction (No Fla.) |
| 2006 | 46% | $1,500,000 | 46% | $1,500,000 | 46% |
Deduction (No Fla.) |
| 2007 | 45% | $2,000,000 | 45% | $1,000,000 |
45% |
Deduction (No Fla.) |
| 2008 | 45% | $2,000,000 | 45% | $1,000,000 | 45% | Deduction (No Fla.) |
| 2009 | 45% | $3,500,000 | 45% | $3,500,000 | 45% | Deduction (No Fla.) |
| 2010 | 35% (or 0%) | $5,000,000* | 35% | $1,000,000 | 35% | Deduction (No Fla.) |
| 2011 | 35% | $5,000,000^ | 35% | $5,000,000 | 35% | Deduction (No Fla.) |
| 2012 | 35% | $5,000,000 (CPI) | 35% | $5,000,000 (CPI) | 35% | Deduction (No Fla.) |
|
2013 (and therefter) |
55% | $1,000,000 | 55% | $1,000,000 | 55% | 100% of Credit |
* In 2010, If estate elected out of estate tax then unified credit amount is $0
^ In 2011 and 2012, the $5 million exemption amount is portable between spouses if deceased spouse has insufficient assets to fully utilize unified credit exemption amount at time of his or her death.
As the above table shows, the unprecedentedly high exemption amounts of $5,000,000 per spouse that are currently available are NOT permanent. Additionally, the currently low estate tax rates (and gift/gst tax rates) of 35% are NOT permanent. Rather, both shall expire or "sunset" on December 31, 2012 and on January 1, 2013 the old estate tax laws (prior to the so-called "Bush Tax Cuts") will go back into effect. It is important for families to understand that the $1,000,000 per spouse exemption and the 55% estate tax rate will go into effect on January 1, 2013 by default (unless Congress and the President pass new legislation before January 1, 2013.) Except for those clients who are terminally ill or could reasonably expect to pass away before January 1, 2013, this means that there is a very real danger that a significant amount of their wealth (that portion in excess of $1,000,000) will unexpectedly be subject to a 55% estate tax upon their death. For this reason, many estate plans should be reviewed and revised to reflect this possibility. Furthermore, now more than ever, families should actively engage in various estate tax reduction planning strategies to preserve their wealth for their children and other beneficiaries.
