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Your estate owes federal estate tax on the value of your taxable estate if the estate is larger than the amount you are permitted to leave to your heirs tax free.
That amount, which is set by Congress, is $2 million for 2006, 2007, and 2008 and is scheduled to increase to $3.5 million in 2009.
Under current law, the estate tax will be eliminated in 2010. Without further Congressional action, the tax will be reinstated in 2011. However, modifications to the law may be made before that date.
If your estate may be vulnerable to these taxes, which are figured at a higher rate than income taxes, you may want to reduce its value. You could do this by using a number of tax planning strategies, including making nontaxable gifts and creating irrevocable trusts.
Further, if you're married to a US citizen and leave your entire estate to your spouse, there are no estate taxes, no matter how much the estate is worth. However, estate taxes may be due when your surviving spouse dies.
You may also face estate taxes in your state.
A tax imposed on the value of the estate of a decedent.The conceptual justification is premised on a peculiarly American notion that it is undesirable for generations to accumulate wealth by passing it to each other in a manner similar to that of English aristocracy and that each generation should make its own mark and earn its own way. As a result, it is considered advantageous to remove wealth from each generation by way of estate taxes and use the money for the common good.For details,see Publication 554,“Survivors,Executors and Administrators”available at the IRS Web site,www.irs.gov.