Death & Taxes

The “death tax” is a euphemism for the estate tax.   Estate tax is imposed "on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.

Federal estate tax -- In 2009 decedent’s estates that are valued at more three and a half million dollars are subject to the federal estate tax. 

State inheritance taxes -- In addition to the federal estate tax, many states impose an estate tax although it is often called an inheritance tax and must be paid out of the deceased estate.  Some states "piggyback" on the federal estate tax law concerning estates subject to tax (i.e., if the estate is exempt from federal taxation it is also exempt from state taxation).  Some states' estate taxes, however, operate independently of federal law, so it is possible for an estate to be subject to state tax while exempt from federal tax.

Deceased Estate and Tax Rates

The maximum tax rate for a estate under the federal estate tax scheme is 45% of the taxable estate.  This does not include any amounts that may be due under state inheritance tax statutes or Second To Die Insurance.  The complex nature of estate tax and the large tax liability has led to many methods of tax avoidance.  Insurance companies, financial planning and brokerage firms and law firms all market and specialize in estate planning and tax avoidance.  One of the most common methods of estate planning is with wills and living trusts.  Husband and wife’s can combine their estate tax exemptions though these documents.  These instruments must be drafted and execute carefully to avoid creating a larger tax liability on the surviving spouse or children.

Legal Help for Death Tax

Unless you have an extremely simple estate, this is not an area of the law where you want to do it yourself.  There are strict laws as to how a will is to be executed.  Any tax law is complicated and estate tax law is no exception.  If your goal is to protect your assets and your family, consult an experienced estate lawyer about your expected estate.  Your estate plan should be updated at least every five years and more often if a major event occurs that could affect your estate.

You cannot avoid death or taxes.  You can minimize federal and estate taxes by proper planning.  Consult with a qualified attorney on estate matters.  Estate tax planning wills and probate are not for the do-it-yourselfer.