Table of Contents

Will my estate have to pay taxes after I die?

It depends. The federal government imposes estate taxes at your death only if your property is worth more than a certain amount based on the year of deathó$2,000,000 in 2006-8, $3,500,000 in 2009. But there are a couple of important exceptions to the general rule. All property left to a spouse is exempt from the tax, as long as the spouse is a U.S. citizen. And estate taxes won't be assessed on any property you leave to a tax-exempt charity.ot:

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Do states also impose death taxes?

Most states impose death taxes of some kind. In many cases, there's a state death tax only where a federal estate tax would apply. But some states have estate taxes that are "uncoupled" form the federal tax, and some have inheritance taxes.

Inheritance taxes are paid by your inheritors, not your estate. Typically, how much they pay depends on their relationship to you.

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How can I minimize federal estate taxes?

There are various ways. One way is to leave your children, directly or in trust, an amount up to the estate tax exemption amount ($2,000,000 in 2006-8) and the balance to your spouse.

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Can I avoid paying state death taxes?

In most states that base their death taxes on the federal estate tax, steps that avoid federal tax also avoid state tax. If your state imposes some other kind of death tax, your professional advisor can help minimize the state tax by actions specifically adapted to that tax.

If you live in two statesówinter here, summer thereóyour inheritors may save on death taxes if you can make your legal residence in the state with lower death taxes.

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Can I just give all my property away before I die and avoid estate taxes?

You can give up to $12,000 (2007 number) per person per year with no gift tax liability.  Gifts exceeding that amount are counted against a gift tax exemption of $1,000,000.  Gifts exceeding that exemption are subject to gift tax.  At your death, these gifts could become your taxable estate (with a credit for gift tax paid).

There are, however, a few exceptions to this rule. You can give an unlimited amount of property to your spouse, unless your spouse is not a U.S. citizen, in which case you can give away up to $100,000 (indexed; the 2007 amount is $125,000) per year free of gift tax. Any property given to a tax-exempt charity avoids federal gift taxes. And money spent directly for someone's medical bills or school tuition is exempt as well.

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