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The Estate and Tax Planning Team at Fitzwater
Meyer, LLP, has attorneys experienced in estate and gift tax issues.
We invite you to contact us
for more information or to schedule an appointment. |
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WHAT IS THE FEDERAL ESTATE TAX?
The federal estate tax is a tax assessed at a person’s death on the
transfer of assets to his or her heirs or beneficiaries. While the federal
estate tax is assessed at a person’s death, there is also a tax on lifetime
transfers of assets called the federal gift tax.
The federal estate tax is charged if the value of your estate is above a
certain threshold, often called the applicable exclusion amount. Under the recently
revised gift and estate tax laws, the applicable estate tax exclusion amount
for the year 2009 is $2,000,000. This means that each person can transfer up
to $3,500,000 without incurring paying federal estate tax. The applicable exclusion
amount is slated to change as follows:
Jan.1, 2009 $3.5
million
Jan.1, 2010 repeal
of the estate tax
Jan.1, 2011 $1,000,000
As you can see from the above chart, the estate tax is currently scheduled to
repeal. However, on January 1, 2011, this legislation will expire, and the applicable
exclusion amount would automatically revert back to $1,000,000. See below for
a further discussion of this issue.
WHAT ASSETS ARE INCLUDED IN MY ESTATE?
The federal estate tax is computed on the net worth of the assets in your taxable
estate. It is also important to understand that your taxable estate
is different than your probate estate.
Your probate estate only contains assets that are subject to probate, while
your taxable estate includes every asset that you owned, or exercised control
over, at your death. Thus, assets that you own outright, as well as assets
in your Revocable
Living Trust, are included in your taxable estate. Some people are surprised
to learn that the following assets are also included in your taxable
estate:
- the death benefit value of any life insurance policy that you own; and
- the value of your retirement account, even if you have a designated beneficiary.
- any assets that you own jointly with right of survivorship, even with your
spouse.
DO I HAVE TO WORRY ABOUT FEDERAL ESTATE TAX?
The assets in your taxable estate will be subject to federal estate tax if
their combined fair market value on the date of your death is greater than the federal
applicable exclusion amount. The current applicable exclusion amount is $3,500,000.
DO I HAVE TO WORRY ABOUT TAXES IF I HAVE A REVOCABLE LIVING TRUST?
While a Revocable Living Trust may protect your assets from probate, it will
NOT shield your assets from estate tax unless tax planning provisions are included.
You should contact an experienced estate planning attorney who can discuss
techniques to reduce your exposure to estate taxes.
ISN'T THE ESTATE TAX GOING TO BE REPEALED?
Under current law, the estate tax is scheduled to be repealed for one year,
beginning on January 1, 2010. However, the scheduled repeal automatically expires
on December 31, 2010, and the estate tax will come back into effect on January
1, 2011. There have been discussions by the President and Congress about permanently
repealing the estate tax, but this does not seem likely. Most observers believe
Congress will pass legislation continuing the estate tax in 2009.
The changing estate tax picture emphasizes the need for flexibility in your estate
planning documents. The use of a disclaimer trust may help. (See Building Flexibility
into Estate Planning below.)
DOES OREGON HAVE AN ESTATE TAX?
Yes, the State of Oregon will also assess a tax (called the Oregon inheritance
tax) on the transfer of assets to your heirs and beneficiaries at your death.
An Oregon resident will pay Oregon inheritance tax if the value of the gross
estate exceeds the Oregon applicable exclusion amount.
While the Oregon inheritance tax has traditionally been linked to the federal
applicable exclusion amount (See what is the Federal Estate Tax? above), in
2003 a new Oregon inheritance tax law came into effect. Under the new law,
Oregon creates its own applicable exclusion amounts which no longer track the
federal law. The current Oregon applicable exclusion amount is $1,000,000.
Thus a decedent dying in Oregon in 2008 with a gross estate of $1,500,000 will
not have to pay any federal estate tax (because the federal applicable exclusion
is $3,500,000 for 2009) but will owe Oregon inheritance tax.
BUILDING FLEXIBILITY INTO YOUR ESTATE PLANNING
The future changes in the federal estate tax exemptions and the disconnected
Oregon Inheritance tax exemptions highlight the importance of building as much flexibility as
possible into good estate planning documents. With the use of disclaimer
planning, often referred to as a "Disclaimer Trust," taxpayers
can wait until the death of the first spouse to see what the tax rules and
exemption amounts are at that time and make a decision whether
to fund a Credit Shelter Trust.
Note: If you are unsure whether your will or trust contains disclaimer planning
and flexibility, contact Fitzwater Meyer and ask for a member of our Estate Planning
and Tax Team to review your estate planning documents.)
WHAT IS THE FEDERAL GIFT TAX?
The federal gift tax is a tax assessed on lifetime transfers of assets for
less than fair market value. If you "give" someone an asset or
money and don’t receive anything in return or in return you receive less value then the asset
is worth, you have made a gift.
The person that makes the gift is called the donor. The person that receives
the gift is the donee. A donor is allowed to make up to $12,000 in gifts to any
donee. This is called the annual exclusion. The $12,000 annual exclusion is per donee,
so a donor may make $12,000 gifts each year to several donees without being subject
to the federal gift tax.
Example: As part of her estate planning, Grandma makes a $12,000 cash
gift to each of her five grandchildren each year. Grandma does not owe any
federal gift tax.
The federal applicable exclusion amount (see what is the Federal Estate Tax?
above) is also used against lifetime transfers before a federal gift tax is
assessed. If you were to give a gift which is more than $12,000 in a year to
one person, instead of owing a gift tax at the time of your gift, your applicable
exclusion amount would be reduced by the amount of the gift exceeding $12,000.
However, lifetime gifts that exceed in the aggregate $1,000,000 will result
in the payment of gift tax.
WHAT IS GENERATION-SKIPPING TAX?
The generation-skipping tax is a tax assessed on the transfer of assets to
a person in a generation that is more than one generation below the transferor.
This includes transfers from a grandparent to a grandchild or a member of a
younger generation. The generation-skipping tax is a flat tax of 45% (2008).
Currently, there is a $3,500,000 exemption from the tax. The generation skipping
tax exemption level will increase at the same level as the federal applicable
exclusion amounts (See what is the Federal Estate Tax? above).
DISCLAIMER: The information contained in this website is based on Oregon law
and is subject to change. It should be used for general purposes only and should
not be construed as specific legal advice by Fitzwater Meyer, LLP, or its attorneys.
Neither this website nor use of its information creates an attorney-client relationship.
If you have specific legal questions, consult with your own attorney or call
us for an appointment.
(c) Fitzwater Meyer, LLP, 2003-2009
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