« back to list

Resources

Probate, estate plannning and adoption FAQs

Many state and federal tax regulations impact estate planning, but a carefully crafted estate plan can reduce the tax burden on an estate and survivors. Both state and federal rules and regulations are extremely complex, and the advice of an estate planning attorney to maximize tax savings is highly recommended, particularly if an estate is likely to be substantial.

Some states have inheritance taxes that devisees to a will must pay; recipients under a will or trust also may face state and federal income tax consequences. In 2001 Congress enacted a law that raises the exemption amount for federal estate taxes with the intent of eliminating all estate taxes by the year 2010. Until then, if an Estate's worth exceeds the exemption amount, which begins at $1 million in 2002 and rises progressively to $3.5 million in 2009, it must file federal tax returns, and state tax returns in most states, and may be subject to federal and state estate taxes. The federal gift tax augments estate and inheritance taxes by regulating gifts to individuals while living; gifts exceeding $11,000 per recipient per year are taxable. This provision prevents people from giving away their assets in order to avoid estate or inheritance tax. For example, in 2006, the total exemption is $2 million dollars. If your estate is worth $3.5 million, the first $2 million of that money is not subject to federal estate tax.

Some gifts from a will do not require tax payments. Current federal tax laws allow testators to leave up to $1,000,000 tax-free to one or more individuals other than a surviving spouse. The surviving spouse may receive an unlimited amount without taxes; however, if the estate is quite large and the entire estate is left to the surviving spouse, that surviving spouse may lose the option of subsequently leaving the same amount to his or her chosen devisees without taxes. Estate planning specialists can assist people with potentially large estates to create trusts that may allow transfers without any or limited tax consequences.

• None of these taxes form a substantial source of revenue for state or federal government. Most estates are not affected substantially by the various tax rules because they do not exceed taxable minimums.