Introduction

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.  

Basics

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 Marital Deduction.

Unified Credit

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 consequence.  

Gift Taxes

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.

Tax Savings

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.