A recent Associated Press article on the Estate Tax provides some basic background information. Read the rest of the article, with more questions and answers here.
Q: What assets are included in an estate?
A: The federal estate tax is calculated by adding up the fair market value of what you own — cash and accounts, stocks and bonds, real estate, trusts, life insurance, businesses, personal property like art work or collectibles, and so forth — at the time of your death. In certain cases, it may also include money or property that was transferred during the deceased’s lifetime. The total is called your “gross estate.”
Then certain deductions may be taken, like mortgages and other debts, and property left to your spouse or to charity. The amount that remains is your “taxable estate.”
Q: Who has to pay estate tax?
A: For 2009, up to $3.5 million per person in assets are excluded from the federal estate tax. The value of property above that level is taxed at a rate of 45 percent. An estate worth less than $3.5 million doesn’t even have to file a federal return, said William E. Massey, senior tax analyst for Thomson Reuters.
State thresholds vary, and not every state has an estate tax. Check your state’s tax department Web site for details.
Besides the first $3.5 million, everything that is left to a surviving spouse is exempt from federal estate tax. The taxable estate may also be reduced by deductions, funeral expenses and any claims against the estate.
In 2010, the federal tax as it currently stands will expire; if Congress does not change the law, there will be no estate tax next year. In 2011, the old exclusion of $1 million returns, and the top rate for holdings above that amount would jump back to 55 percent, where it was in 2001.
Several bills have been proposed in Congress to address the issue, but none has passed yet.
Whether or not a person has a will doesn’t affect the tax their estate owes, said Lynette Atchley, an accountant and certified financial planner in Redlands, Calif.