October 2, 2009

Don't Worry About Estate Taxes

If you're rich then you can skip this article. For the rest of us...

A lot of people seem to worry about paying estate taxes when they pass away. But those people shouldn't really be worrying about estate taxes at all. The overwhelming vast majority of people will never have to pay any estate taxes.

The estate tax has a very large exemption which means you do not need to pay taxes on that portion of the estate. Currently the exemption rate for 2009 is $3.5 Million. So right now only people who have estates worth more than $3.5M will have to pay a cent of estate taxes. Only about 2-3% of Americans have estates worth over $1 M, so very few of us have estates worth more than $3.5M. Under current law only a handful of rich people pay estate taxes. Are you a multi-millionaire? If you answered 'no' then you don't currently have to worry about estate taxes. If you are a multi-millionaire then congratulations, but you may want to consult with an estate planner to properly handle your estate after you pass including ways to deal with estate taxes.

Estate tax laws have been in flux for a few years and are going to change one way or the other in the next couple years. The Economic Growth and Tax Relief Reconciliation Act of 2001 changed estate tax laws. Previous to 2001 the exemption was $675,000 and the law changed it to increase the exemption rate by steps through 2009 when it hit the $3.5 Million level. If current law isn't changed then there will be no estate taxes at all in 2010 and then in 2011 the exemption will drop. Its hard to say what will happen in 2011 exactly since it is quite possible that new legislation will be introduced to change the estate tax system yet again. Worst case the law will expire in 2010 and then in 2011 the exemption will drop back down to the $675,000 level. Still less than 10% of Americans have a net worth over $600K level.

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