Articles

Estate Taxes

What is the difference between estate tax, gift tax, and generation-skipping transfer tax?
Estate tax is calculated on all property that is transferred upon your death. Gift tax is calculated on property your transfer during your life. The generation-skipping transfer tax is designed to make sure you can't skip a generation without paying a transfer tax.

What is the top estate tax rate for 2004?
The top estate tax rate this year is 48%, it drops to 47% in 2005, and to 46% in 2006. This continues a gradual decrease in the top estate tax rate that began in 2002 and continues through 2009. The estate and generation-skipping transfer taxes are repealed for the one year of 2010, but then the taxes revert to the tax rates in effect prior to the 2001 changes unless Congress acts on this issue again. As a result of these changes, it is important to update your estate planning on a regular basis.

How much can I transfer without paying tax if I die in 2004?
Currently, the federal estate and generation-skipping transfer tax credit shelters $1.5 million, but the gift tax credit shelters only $1 million.

How much can I give to an individual each year without incurring a gift tax?
For 2003 and 2004, the annual per donee exclusion for gifts of a present interest is $11,000. There are additional exclusions for tuition educational expenses paid on behalf of another person directly to the educational institution, and medical services paid directly to the donee's health care providers. There are specific rules so consult your tax advisor if you are interested in making such payments in addition to a direct $11,000 gift to a donee.

Qualifying gifts are not taxed and do not use up any of the donor's lifetime credit. Spouses who agree to split their gifting can transfer twice as much - $22,000 this year - per donee without owing gift tax or generation-skipping transfer tax.

Whose responsibility is the gift tax return?
The donor is responsible for filing a gift tax return if he or she makes a gift of more than $11,000 in 2004 that does not qualify for an exemption. The donor is liable for the payment of any gift tax.

When is my life insurance included in my estate for estate tax purposes?
If you own the policy or retain certain "incidents of ownership" in the policy (such as the power to change the beneficiary, the ability to borrow against the policy or pledge the policy as security for a loan), the proceeds will be included in your gross estate for tax purposes. If the beneficiary is your estate, the proceeds are also included. Transfers within 3 years of your death may be recaptured for estate tax purposes.

For more information or to make an appointment, contact Karen Hindson at (770) 350-9102.