Estate taxation is an extremely complex field filling volumes in
legal texts in some cases. We cannot hope to provide comprehensive
coverage of the topic in these pages. However, our effort will be
to provide some understanding of the basic estate tax laws that are
likely to affect many individuals interested in estate planning for
estate tax savings.
A tax is imposed on the total value of your estate. The
imposition of that tax is codified in the United State Code at 26 USC
2001. See our Estate
tax table link to view the actual code section. The estate tax
can be very burdensome, for example, an estate worth $2,000,000.00 after
credits, must pay a tax in the amount of $780,800.00 and only
$1,219,200.00 passes to the beneficiaries of the estate.
An estate is permitted a so called "unified credit".
The unified credit is a credit against estate tax that would otherwise
be owed and allows an estate to pass a certain amount of money tax free.
See the section headed Unified Credit below. A person may leave
any amount to the person's spouse without incurring any estate tax.
See our link to the tax code section providing for the Unlimited
The unified credit is the first concept to understand. The
unified credit is a credit against estate taxes that would otherwise be
levied. In 2002 and in 2003 the unified credit allows an estate to
pass $700,000.00 to any person without any estate tax being imposed.
See our link to the Unified
Credit as it appears in the Tax Code. This amount will go up
to $850,000.00 in 2004, $950,000.00 in 2005, and $1,000,000.00 in 2006
and beyond. This means that if you die in 2006 or later you may
leave up to one million dollars to any person without any estate tax
Gift taxes will be taken
up at a later time as we add to this part of the web site, however you
may be interested in the following links. Gift
tax exclusion, generally $10,000.00 per year, $20,000.00 per couple
per year, and Gifts
to spouse, unlimited.
There are mechanisms and
planning techniques that can be employed to reduce or eliminate the
estate tax burden that may be incurred. Two of the most common are
writing a will to contain a unified credit trust and using an
irrevocable life insurance trust (hereafter "ILIT"). The
technique of using a unified credit trust in a will is sometimes known
as the AB Will, see linked pages for more
information and an illustration of the tax savings that can be
accomplished using a unified credit trust. See our ILIT
pages for a discussion of the use of life insurance trusts.