Copyright 2006 By: Michael B. Miller
2006 Federal Estate Tax Schedule
Net Estate Value
Less than $2,000,000 - 0 %
Over $2.0 million - 46%
Proper tax planning can reduce or eliminate the federal estate tax.
Titling of Assets - 4 Basic Ways
Assets owned by you in your individual name or as a tenant in common, and that do not have a "pay or transfer on death "designation, are probate assets and will be distributed upon your death to the beneficiaries of your Will. If you do not have a Will, those assets will be distributed according to the State's intestacy laws.
Assets owned by your trust (or a trust in which you have an interest) will be distributed upon your death according to the terms of the trust, regardless of what your Will says.
Assets titled in joint tenancy will be distributed to the survivor upon your death, regardless of what your Will or living trust says. Joint tenancy assets may typically include the residence owned by you and your spouse, joint bank accounts and CD's.
Assets having a designated beneficiary such as life insurance, retirement plan, IRA, and annuities will be distributed to the designated beneficiary upon your death, regardless of what your Will or Living Trust says.
Example: Conrad, a widower, purchased a $40,000 CD and named his daughter, Debbie, as a joint owner. 3 months later Conrad executed his Will which left his entire estate to his "son and daughter in equal shares." At Conrad's death, in addition to the $40,000 CD, he had $100,000 worth of assets. Result: Debbie gets the $40,000 CD outright and 1/2 of the other $100,000.
Federal Estate Tax
"Your estate", for federal estate tax purposes, includes the date-of-death fair market value of all interests you own in any assets, regardless of how those assets are titled or distributed upon your death. Naturally, this includes your home, other real estate, automobiles, bank accounts, investments, business interests, jewelry, 401(k)'s, 403(b), IRA's, etc.
You may be surprised to learn that if you own a life insurance policy, the life insurance proceeds, and not just cash values, are also included in your estate for federal estate tax purposes (but are not subject to Indiana inheritance taxes). You can remove life insurance proceeds from your estate, without affecting the beneficiaries, by assigning the policy to an irrevocable trust.
No federal estate taxes will be due if your net estate is less than $2,000,000 for 2006. Also, bequests or other transfers to spouses and charities are exempt from federal estate taxes and Indiana inheritance taxes. If your net estate exceeds $2,000,000 and is not going to your surviving spouse or to charity, the excess will be taxed at 46%. In arriving at "net estate", your estate is allowed deductions for liabilities such as medical, credit card, and mortgages, and expenses such as funeral costs, administrative costs, accountant and attorney fees, etc.
$12,000 Gift Exclusion (formerly $10,000)
In addition to the Estate Exemption and Unlimited Marital Deduction, you can make an unlimited number of gifts of $12,000 or less every year tax-free.
