Estate Planning
Estate Tax Deductions and Credits
In determining your estate and gift tax liability, the Internal Revenue Code permits you to take advantage of several estate and gift tax exclusions, deductions and credits.
(a) Unified credit [2006 - 2008]: You are entitled to a unified tax credit against either estate or gift taxes. This unified credit is basically equivalent to a $2,000,000 exemption. If both you and your spouse are able to make full use of your unified credits, together you may transfer to your children or other beneficiaries a total of $4,000,000 ($2,000,000 in each estate) without incurring any estate or gift tax liability.
The Economic and Growth and Tax Relief Reconciliation Act of 2001 has changed the schedule for the increase of the credit equivalent after 2001. It is now:
| Exemption amt | % Tax Rate - Gifts | |
| 2002 - 2003 | $1,000,000* | 2002 – 50% 2006 – 46% |
| 2004 - 2005 | $1,500,000 | 2003 – 49% 2007 – 2009 – 45% |
| 2006 - 2008 | $2,000,000 | 2004 – 48% 2010 – 35% |
| 2009 | $3,500,000 | 2005 – 47% |
| 2010 | repealed |
*per individual
(b) Unlimited marital deduction: If you are married, you are entitled to a deduction, for either estate of gift tax purposes, equal to the value of all property, which passes to your spouse. Using this unlimited marital deduction, you can entirely eliminate estate tax in the estate of the first spouse to die. However, assets transferred to the surviving spouse in a manner qualifying for the marital deduction will be included in his or her estate upon the survivor's subsequent death.
(c) Charitable Deduction. You are entitled to deduct for estate or gift tax purposes the full value of any gifts to a qualified charitable institution.
(d) Debts and Administrative Expenses: For estate tax purposes your estate is entitled to a deduction equal to the amount of your legal debts and obligations. This will include mortgages or other legally enforceable obligations. Your estate may also deduct for either estate tax or income tax purposes certain administrative expenses in handling your estate. These costs include legal and accounting fees, property appraisal and transfer fees, probate expenses and related costs. Some of these costs can be reduced through the use of appropriate estate planning techniques.
(e) Annual Gift Tax Exclusion: For gift tax purposes, you are entitled to exclude transfers up to $11,000 per year per person. A married couple can treat a gift as a "split gift" and exclude up to $22,000 per year per person. Utilizing this exclusion in a continuing program of annual gifts to family members you may make substantial transfers of property without the imposition of either estate or gift taxes.