The Estate Tax is a tax on the transfer of property as is the gift tax. In addition there is a tax called the Generation Skipping Tax (GST). The GST is extremely complex.
The Estate Tax is computed to tax the transfer of all assets within a person's estate. A tax credit exists that effectively allows the first $675,000 of property to pass without tax. No transfer of property to a spouse who is an American citizen is taxed for estate tax or gift tax. Effective January 1, 2002, the credit effectively increases the amount of property that may be passed to beneficiaries to $1,000,000.00 per spouse.
Generally there is a credit applied to the GST for the first $1,000,000 of tax that would apply to transfers "skipping" a generation. Loosely grandparent to grandchild.
FEDERAL ESTATE TAX STATS AND CALCULATIONS
The Economic Growth and Tax Relief Reconciliation Act of 2001 has changed the federal estate tax numbers. Below are the changes:
Year | Exemption Maximum | Tax Bracket | Unified Credit |
2001 | $675,000 | 55 percent | $220,550 |
2002 | $1 Million | 50 percent | $345,800 |
2003 | $1 Million | 49 percent | $345,800 |
2004 | $1.5 Million | 48 percent | $555,800 |
2005 | $1.5 Million | 47 percent | $555,800 |
2006 | $2 Million | 46 percent | $780,800 |
2007 | $2 Million | 45 percent | $780,800 |
2008 | $2 Million | 45 percent | $780,800 |
2009 | $3.5 Million | 45 percent | $1,455,800 |
2010 | N/A | N/A | $345,800 |
Future Tax Traps
**The Taxpayer Relief Act of 1997 numbers will be reinstated provided that The Economic Growth and Tax Relief Reconciliation Act of 2001 is not extended. Under current law, the federal estate tax is cancelled for only year 2010.
In addition, during 2010 there will be no "step-up" in basis for assets. Currently when someone dies the property tax "basis" for income tax purposes is increased to the fair market value at the time of death. Therefore little if any gain on the sale of property by beneficiaries is taxable. Under the new law, the basis will be the fair market value of the property or the tax basis at the time of death, whichever is less.
