Financial advisors with wealthy clients whose estates exceed the unified tax credit
of $5.49 million (for an individual) or $10.98 million for a couple shouldn't necessarily expect those estates will have no tax liability.
The resolution calls for "elimination of estate taxes on all but a minute fraction of estates by refining and substantially increasing the unified tax credit
Through tools such as a Unified Tax Credit
, Irrevocable Trusts, and Charitable Remainder Trusts, you have more control over asset distribution and can potentially reduce taxes.
The second tax break available under the law is the use of the unified tax credit
, which applies both to gifts made while alive and to property passed on by way of inheritance after death.
Estate planning documents drafted prior to the new law should be reviewed; wills and trusts referencing the unified tax credit
may have an unintended result, not distributing assets in accordance with the decedent's intent.
Gifts covered by the annual exclusion do not reduce a donor's $675,000 unified tax credit
Under current law, estates subject to death tax are eligible for a unified tax credit
of up to $675,000; the exemption is scheduled to increase, to $1 million by 2006.
In addition, each person has a unified tax credit
permitting the tax free transfer of up to $600,000 to nonspousal beneficiaries.
The beneficiaries must pay taxes on the entire $1.5 million minus the unified tax credit
on the first $600,000.
The Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") effectively began to take the middle class out of the federal transfer tax system by the adoption of a series of reforms, including a $10,000 annual exclusion, an unlimited marital deduction and a phased-in unified tax credit
equivalent to a $600,000 exemption.
These transfers exhausted nearly all of her unified tax credit
Once an estate is valued, a disclaimer or partial qualified terminable interest property (QTIP) election may facilitate using the decedent's unified tax credit
or fine-tuning the marital deduction.