Legal Ease by
Shane Givens
Oct. 12, 2011
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What is the "death tax"? I was asked recently to write an article on the current status of what is commonly known as the “death tax,” legally and more formally known as estate taxes. Estate taxation is extremely complicated and intricate, and this article is meant to only give a brief overview. Many lawyers specialize in this area and have received degrees above and beyond law school in order to understand and maneuver around estate taxes. These taxes are imposed on the transfer of a person's taxable estate at the time of a person's death. This transfer of assets can be through a will or according to the state laws regarding transfer of property (if there is no will). The estate tax is one part of the Unified Gift and Estate Tax system in the United States. The other part of the system, the so-called “gift tax,” imposes a tax on transfers of property during a person's life. Estate taxes are governed by federal law, which means Congress is in control of how much tax an heir pays on an inheritance. Estate tax law is always changing because there is always a huge debate in Washington over when, if, and how estate taxes should be paid. Officially, federal estate taxes are imposed on the transfer of the taxable estate of every deceased person who is a citizen or resident of the United States. The starting point in calculating a taxable estate is determining the amount of the total estate and subtracting certain allowable federal deductions. No matter what a person's taxable estate, under current law it has to reach a certain amount before a tax can be imposed, called the “maximum allowable credit” (MAC). For example, in 2006, the MAC was $2 million. So, if a person with a taxable estate of $3.5 million died in 2006, that person's heirs would not pay estate tax on the first $2 million. The maximum allowable credit is always a point of controversy in Congress and traditionally it changes from year to year. The number, however, is usually high enough that most of us will never have to worry about paying estate taxes. For example, from 2006 to 2008, the maximum allowable credit was $2 million. In 2009, it jumped to $3.5 million, and after much congressional debate and controversy it is now $5 million (at least through 2012). What happens in 2013? No one knows. The subject will certainly be debated again, but there is no way to predict the outcome. My advice is not to let any of your heirs near your life-support plug on Dec. 31, 2012 if Congress has not come up with a new plan, because if you die they won't owe any taxes on the first $5 million you leave them after you're gone. This column is intended for general information purposes only. The answers to most legal problems rely on specific facts of a particular situation; therefore, it is very important to see a lawyer when these situations arise. Please e-mail questions for future columns to givenslaw@tds.net. |