Federal Estate & Gift Taxes
In 2007 there is a flat tax rate of 45% for estates exceeding the exemption equivalent of $2.0 million. In prior years it was much more complicated, as there were graduating rates. Unless there is a change in the law, the more complicated system will return in 2011.
For example, to determine the tax on a net estate of $1,300,000 for a death occurring in 2002 when the exemption is $1,000,000 multiply 41% times $250,000, which is $102,500, (the tax on the first $1,250,000) plus 43% times $50,000, which is $21,500 for a total estate tax of $124,000.
$1,000,000 to $3,500,000 - Exemption Equivalent
Taxable Estate Between |
The Tax Rate |
| 1,000,000 To 1,250,000 | 41% |
| 1,250,000 To 1,500,000 | 43% |
| 1,500,000 To 2,000,000 | 45% |
| 2,000,000 To 2,500,000 | 49% |
| 2,500,000 And up | 50% |
Year |
Amount |
| 2002 | $1 million |
| 2003 | $1 million |
| 2004 | $1.5 million |
| 2005 | $1.5 million |
| 2006 | $2 million |
| 2007 | $2 million |
| 2008 | $2 million |
| 2009 | $3.5 million |
| 2010 | Estate & GST tax repealed |
The exemption equivalent for federal estate and gift tax will change as shown on the chart to the left. In 2002 the exemption will be $1,000,000, and will eventually be raised to $3,500,000 in the year 2009. In the year 2010 the estate tax and generation skipping tax is repealed for that year only unless new law extends repeal, otherwise in 2011 the exemption returns to $1,000,000.
Each person is allowed to make lifetime gifts of $1.0 million per donor, for 2006/2007 without incurring gift tax. An additional $1.0 million exemption is added at death, making the $2.0 million exemption equivalent. Each person is allowed to make gifts of $12,000 for 2006/2007 per donee of present interests under the annual exclusion, for an unlimited number of donees.
Each estate is allowed an unlimited exemption for property transferred to a qualified charity.
Each married person is allowed an unlimited marital deduction for property passing by gift or estate to a spouse who is a United States citizen.
Each individual is allowed a gift or estate tax exemption equivalent from $1,000,000 in 2002 to $3,500,000 in 2009.