What is the Estate Tax Credit?

Amy Hunter

The estate tax credit allows you to pass a particular amount of money to your heirs, tax-free. This can be in the form of actual cash, property or anything else of value. If you are married, the amount that you, as a couple, can pass down effectively doubles. The reason for this is that each member of the marriage can pass along the same amount.

An accountant can explain the estate tax credit and give guidance to a family that wants to use it.
An accountant can explain the estate tax credit and give guidance to a family that wants to use it.

The amount of the estate tax credit changes each year. If you have a sizable estate, it is important to seek advice from an estate tax professional. As an example of how much the numbers change, in 2001, it was possible to pass along $675,000 US dollars (USD) tax free. In 2009, you can pass $3.5 million (USD). In 2010 the estate tax credit is set to expire. This, of course can change, but in 2011 it is expected that the estate tax credit will return to the same level that it was in 2002.

The estate tax credit is complicated, and it makes sense to speak with an accountant before making any distributions to your family. A skilled financial manager can guide you through the process of providing gifts for your loved ones without them being unduly taxed. If you have significant assets, it is important to invest time in planning your estate while you and your spouse are still healthy.

Part of the confusion over the estate tax credit is because the estate tax credit is coupled with gift tax exemptions. The gift tax exemptions cover the taxes on property, money or other assets while the gifter is alive. There is, however, a lifetime cap on the amount of assets that can pass to a beneficiary tax free. This includes anything gifted while the gifter is alive as well as after they pass along.

The combined total that a beneficiary can receive makes it important that both the person gifting the asset and the person receiving it know the current limits. They can then determine how accepting a gift tax free while the benefactor is alive will affect how the estate is handled after they pass away. Clearly, for a matter this complicated and rapidly changing, anyone with even a modest estate should consider advice from an estate planning attorney or financial professional. Proper planning before your death can save your beneficiaries a great deal of money.

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