ESTATE TAXES:
USING YOUR UNIFIED CREDIT
One of the most important concepts to understand as you approach
estate planning is the applicable exemption (formerly known as the
Unified Credit). The Unified Credit determines how much you can
give away during your lifetime or pass on through your estate free
of tax. (Of course, an estate of any amount left to your spouse is
free of estate taxes under the marital deduction rules.)
At the most basic level, your estate planning goal should be to
reduce the amount of your estate—your assets, less debts and
charitable deductions and the amount you pass to your spouse—to
less than the Unified Credit Property Equivalent Amount. If you do,
your heirs will pay no estate taxes.
One way to remove assets from your estate is through gifts,
another is through charitable contributions.
Using the Unified Credit to greatest advantage requires careful
planning and, usually, expert guidance. However you decide to use
your credit, though, there’s good news. The amount you can give to
others or pass on tax free to your heirs is increasing:
| 2002-2003 |
$1,100,000 |
| 2004-2005 |
$1,500,000 |
| 2006-2008 |
$2,000,000 |
| 2009 |
$3,500,000 |
| 2010 |
Death Tax is repealed |
| 2011 |
Absent legislation to the
contrary, amounts revert to laws in effect prior to
2001 tax law changes. |
|
| 2002 |
50% |
| 2003 |
49% |
| 2004 |
48% |
| 2005 |
47% |
| 2006 |
46% |
| 2007-2009 |
45% |
| 2010 |
Death Tax is Repealed |
|
| 2002-2003 |
$1,000,000 |
| 2004-2005 |
$1,500,000 |
| 2006-2008 |
$2,000,000 |
| 2009 |
$3,500,000 |
| 2010 |
Death Tax is repealed |
| 2011 |
Absent legislation to the
contrary, amounts revert to laws in effect prior to
2001 tax law changes. |
|
The applicable exclusion for gift tax purposes increased to
$1,000,000 in 2002 where it will remain. The top gift tax rate
will be identical to the top estate tax rate until 2010, and
thereafter will be the same as the top income tax rate (i.e., 35%).
|