Will I Have to Pay Taxes Upon My Death?
The federal estate tax is levied at a top rate of forty-five percent. The estate tax is applied against the deceased person’s gross estate which is defined as everything the decedent has a beneficial ownership in at the time of their death. The assets of a revocable living trust are included in the gross estate and subject to estate tax. Assets that transfer to a spouse or charity escape payment of estate taxes. Estate taxes are levied upon the assets in the estate which exceed the lifetime exclusion (unified credit) amount which is set at $3,500,000 in 2009. Estate taxes sunset for 2010 and the amount of the unified credit for 2011 and future years is unknown at this time.
The federal gift tax is also levied at a top rate of forty-five percent. Every person has a $1,000,000 gift tax exclusion which allows transfers up to this amount without incurring gift tax. Additionally, an annual gift tax exclusion allows for gifts up to $12,000 per recipient to be made without incurring gift tax. Gifts to a spouse and charity are also exempt from gift tax. The gift tax is preferable to the estate tax because the gift tax is exclusive while the estate tax in inclusive.
The generation skipping tax (GST) is levied at a forty-five percent rate on transfers to grandchildren or more remote heirs. Every person has a $2,000,000 GST exclusion which allows for transfers up to this amount to grandchildren and others of a “skip” generation without incurring tax.