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Frequently Asked Questions (FAQs)

Taxes

What are estate taxes?

Estate taxes are charged by the federal (and sometimes the state) government when the net value of a decedent’s assets at his or her death exceed the federal estate tax exemption equivalent. For a decedent who dies in 2009, the equivalent is $3.5 million, that is, if the net value of what the decedent owned exceeds $3.5 million, the difference is taxable beginning at the rate of 45%. If the gross estate exceeds $3.5 million, a return is required but if there are sufficient deductions, such as an outstanding mortgage, which bring the taxable estate to less than $3,500,000, no tax will be due.

Under present law, there is no federal estate tax if the decedent dies in 2010. However, for a decedent who dies in 2011, the law reverts back to the years when the exemption equivalent was only $1 million. (In his budget, President Obama has proposed to mainatin the present $3.5 million exemption for decedents dying in 2010.)

All assets which pass to a surviving spouse are not taxed by reason of the unlimited marital deduction. However, if this leaves the surviving spouse in a position where it is likely there will be an estate tax on his or her death, the surviving spouse may wish to consider disclaiming, that is, refusing to inherit all of a part of the deceased spouse’s interest in assets. How those assets are then distributed will depend on the will or trust of the decedent.