Basic Estate Tax Considerations

Historically, when someone dies, their estate (property, money, life insurance policies, IRAs, etc.) must be studied to see if federal tax is owed. The death is the triggering event.

However, as part of a frankly mystifying Congressional scheme, there is absolutely no federal estate tax in 2010. Wealthy, unhealthy folk are undoubtedly mulling this over. (Some of these estate planning issues can be quite morbid. Yet practical.) The federal estate tax is scheduled to return in 2011. A $1 million exemption will be provided, but everything over that amount will be taxed -- at 55%. Phew! Now you see why folks try to reduce the size of their estates before they die. For instance, a person can give gifts up to $13,000 each year without reporting it to the IRS.

The first member of a couple who dies can pass everything he or she owns to the remaining spouse tax-free. This is a policy choice, because we think it's bad policy to saddle a grieving, vulnerable widow/er with a tax bill. But, when the widow/er dies, all the couple's property is scrutinized in order to determine if tax is owed. Tax planning will help mitigate and control situations like these.