Wills And Trust Information Center

Death and Taxes: Planning for Both

When you die, the assets and property interests you leave behind minus any debts make up your estate. Whether your assets go through probate or you have set up alternative means for transferring your property, any estate or other taxes owed at the time of your death must be paid. While taxes cannot be avoided, an estate planning attorney at Law Offices of Jo Bess Jackson, P.C. in Dallas, Texas, can help you minimize your estate’s tax burden as much as possible.

Taxable Estate

When someone passes away, he or she leaves behind a taxable estate. The taxable estate is not the same as the probate estate and can be significantly larger than your probate estate. Your taxable estate includes:

  • All your property interests. Including any property interests you own and property interests in a trust controlled by you outright or by a trust to which you have significant “strings attached.”
  • All your qualified retirement plan proceeds. Qualified retirement plan proceeds are included unless you retired no later than 1984. Persons retiring no later than 1984 may qualify for a full or partial exclusion of these proceeds.
  • All life insurance proceeds. Proceeds from life insurance policies owned by you at the time of your death or payable to your estate.
Estate Taxes

Federal estate taxes are imposed on property transferred at death. In addition, many states also impose estate or inheritance taxes on the same property. The amount of the tax is set on a gradual scale which increases with the size of the estate. These taxes decrease the amount of the share that ultimately will be distributed to the beneficiaries.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) provided for estate tax relief from January 1, 2002 through December 31, 2010. Under the Act, the estate tax was gradually reduced from a maximum estate tax rate of 55 percent for estates larger than $1 million in 2001, to 45 percent for estates larger than $3.5 million in 2009, to no estate tax in 2010. After December 31, 2010, the estate tax was scheduled to revert to its 2001 level — a maximum rate of 55 percent for estates larger than $1 million. However, on December 17, 2010, President Obama signed the 2010 Tax Relief Act, extending estate tax relief for another two years, from January 1, 2011 through December 31, 2012. Under the 2010 legislation, the maximum estate tax rate is 35 percent for estates larger than $5 million ($10 million for married couples). If Congress fails to enact legislation further extending estate tax relief, the estate tax will revert to its 2001 levels on January 1, 2013.

Gift Taxes

One way to minimize the amount of estate taxes that must be paid upon death is to transfer property while still alive. While there is a gift tax imposed on these types of transfers, many can take advantage of the gift tax annual exclusion and the gift tax exemption to make tax-free transfers.

The annual federal gift tax exclusion allows a single person to give up to $13,000 (as of 2010) per person to an unlimited number of people per year while married couples can double it to $26,000 per person per year. Gifts that qualify for the annual federal gift tax exclusion are not subject to gift tax and do not count against the lifetime exemption.

The gifts you give each year beyond the annual exclusion are totaled and may be subject to the gift tax. The 2010 Tax Relief Act set the gift tax rate at 35 percent for gifts totaling more than $5 million ($10 million for married couples). Like the estate tax, the gift tax will remain at this level from January 1, 2011 through December 31, 2012, and if Congress fails to enact legislation further extending gift tax relief, the maximum gift tax rate and exemption will revert to their 2001 levels — 55 percent and $1 million, respectively — on January 1, 2013. Given the complexities of estate and gift taxes, it is important to work with a tax professional to take full advantage of these exemptions.

Conclusion

The tax issues surrounding your estate can be quite complex. An experienced estate planning attorney at Law Offices of Jo Bess Jackson, P.C. in Dallas, Texas, will help you address your tax issues and minimize the impact taxes have on your beneficiaries.

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