Free The Federal Estate Tax - Montana

The Federal Estate Tax
by Marsha A. Goetting, Ph.D., CFP®, CFCS, Professor and Extension Family Economics Specialist; Joel Schumacher, Extension Assistant, Department of Agricultural Economics & Economics. This publication analyzes how federal tax laws affect individual estates, including changes resulting from the Economic Growth and Tax Relief Reconciliation Act of 2001. In many cases, the federal estate tax can be reduced significantly by careful planning during life.

MontGuide
MT199104 HR Revised 7/06

THE FEDERAL ESTATE TAX IS A TAX AGAINST the estate of a deceased person for the privilege of transferring property. The amount of the estate tax depends upon the value of the assets the decedent (the person who died) held at death and taxable transfers during life, how the assets are held, and deductions and credits available. In many cases, the potential estate tax can be reduced significantly by careful planning during life. This MontGuide presents a general explanation of the federal estate tax provisions resulting from the Economic Growth and Tax Relief Reconciliation Act of 2001. One significant provision is that the repeal of the federal estate tax was postponed until Jan. 1, 2010. Another change is a gradual reduction in the highest tax rate from 50% to 45% by 2008. Also, there is an increase in the value of property that may be transferred free of the federal estate tax during the years 2006-2009 (see Table 1). During 2006 - 2008, the exclusion is $2 million and in 2009 the amount increases to $3.5 million.

Transfers with retained life estate

The Gross Estate Calculation of the federal estate tax begins with the determination of a deceased person's gross estate. The gross estate includes: the fair market value of all real and personal property owned at death, transfers with retained life estate, transfers taking effect at death, revocable transfers, annuities, joint interests, certain powers of appointment, certain proceeds of life insurance, certain transfers occurring within three years of death, and future payments that were owed to the decedent at the time of death. An explanation of each follows.
Real and personal property owned by the deceased person

Generally, the value of the gross estate includes property transferred during life by the decedent if he or she retained possession, enjoyment of, or reserved certain rights or interests in the property. However, if the transfer was made for full consideration in money or money's worth at the time of the transfer, the value will not be included in the decedent's gross estate. Interests that an individual could reserve for life include the use, possession, or other enjoyment of the transferred property; the right to receive income; or the right to designate persons who may receive income from the transferred property. This provision will bring back into the gross estate, for federal estate tax computation purposes, the full date-of-death value of closely held corporation stock if a decedent transferred the stock but retained voting rights in the transferred stock. This provision will also bring back into the gross estate, for federal estate tax computation purposes, the value of property a decedent transferred but retained the right to income or retained the right to live on the property. This is true even though the property is validly transferred according to Montana law.

Example A: Jack deeded his ranch to his son and daughterin-law. However, Jack continued to live on the ranch, made management decisions, and received income from the operation. In this case, the Internal Revenue Service concluded that he had retained a life interest in the property. The value of the ranch at the time of Jack's death was included as a part of his gross estate.
Transfers taking effect at death (reversionary interests)

Property owned by the decedent includes real estate, stocks, bonds, checking and savings accounts, and promissory notes or other evidences of indebtedness held by the decedent. Also included in the gross estate are miscellaneous personal property (furniture, jewelry, personal effects), collections (works of art, coins, stamps, guns), and the decedent's business interests in a partnership or family corporation.

If a transfer was not made for full consideration in money or money's worth (reversionary interests), the gross estate includes the value of property interests transferred at death if all of the following conditions exist: 1. Only by surviving the decedent could the beneficiaries obtain possession or enjoyment of the property transferred.

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2. A right to have the property to oneself (reversionary interest) was retained by the decedent. 3. The value of the reversionary interest immediately before the decedent's death exceeded 5% of the value of the entire property. Example B: John transferred property to a trust with the income payable to his wife for life and the remainder payable to himself or, if he is not living at his wife's death, to their child or the child's estate. John held a reversionary interest by the terms of the trust. He had expressly retained the right to have the property returned to him in the event he survived his wife, a right he possessed up to the moment of death. If the value of the reversionary interest was greater than 5% of the trust value, the value of the trust will be included in John's gross estate.
The value of the reversionary interest is based on actuarial tables. In other words, calculating the value of the reversion depends on the likelihood that the person establishing the trust will survive his or her beneficiaries.
Revocable transfers

Example C: A husband purchased a farm for $200,000 with his own funds and titled it in joint tenancy with right of survivorship with his wife. When the husband died, the farm had increased in value to $1.4 million. Because the farm was in joint tenancy between husband and wife, one-half the value of the farm ($700,000) was included in the husband's gross estate for determining the federal estate tax. When property is jointly owned by a decedent and someone other than the decedent's spouse, the entire value of the property, only a portion of it or none of it may be included in the gross estate of the first joint tenant to die. The entire value is included if the tenant furnished all the consideration. None is included if the joint tenant contributed nothing. And, a prorated share is included if each owner contributed to the cost of the acquisition of the jointly held property. Example D: A father placed his ranch valued at $2.5 million in joint tenancy with right of survivorship with his son. Upon the father's death, the son could not prove he contributed funds to the purchase price. As a result, the entire value of the ranch ($2.5 million) was included in the father's gross estate for determining the federal estate tax.
An exception is allowed, if the personal representative of the estate (the person who carries out your plan for the settlement of your estate; formerly called "executor" or "administrator") can prove the surviving joint owner provided part or all of the money when the property was acquired or when the mortgage was paid off.

The gross estate includes the value of property interests transferred by a decedent unless the transfer was made for full consideration in money or money's worth if the enjoyment of the property transferred was subject, on the date of death, to any power of the decedent to alter, amend, revoke or terminate the transfer. An example of a revocable transfer is a revocable living trust. While one purpose of revocable living trusts is to reduce or eliminate probate costs, the assets in a revocable living trust are still included in the gross estate and subject to federal estate taxes. The power to change beneficiaries and/or the power to increase any beneficiary's enjoyment of the property are other examples of revocable transfers.
Annuities

Example E: A father and his son bought a farm for $300,000. Each provided half the funds for the purchase. When the father died, the farm was valued at $5 million. The amount included in the father's gross estate for federal estate tax purposes was half of the value ($2.5 million) because he had contributed half of the original purchase price.
The burden of proof is on the decedent's estate to prove the amount and source of contribution on the part of the surviving joint owner or owners unless the decedent and surviving joint owner is a spouse. Records are needed to document when the property was acquired, what consideration was furnished and by whom. In the absence of such records, the full value of the property will be subject to the federal estate tax.
Powers of appointment

The gross estate includes the value of an annuity or other payment that a beneficiary is due to receive because he or she survives the decedent. The amount included is proportionate to the purchase price contributed by the decedent or by the decedent's employer. A single life annuity contract that provided periodic payments to the decedent for life and ceased at his/her death is not included in the gross estate for federal estate tax computation purposes. The amount included is proportionate to the purchase price contributed by the decedent or the decedent's employer.
Joint tenancy interests

If property is titled by a husband and wife as joint tenants with rights of survivorship, then the estate of the first spouse to die includes one-half of the value of property regardless of which spouse paid for purchase of the property. This rule applies as long as the decedent and the surviving spouse are the only joint tenants on the property title.

The gross estate includes the value of property interests over which the decedent had a general power of appointment at death. A power of appointment is the power to determine who will own or enjoy a property, presently or in the future. In essence, if the decedent retained the "right to direct" the property, the value will be included in the gross estate. A general power of appointment is one under which the holder could appoint the property to himself, his creditors, his estate, or his estate's creditors. A general power of appointment also includes the unlimited power to consume, invade, or appropriate either income or principal, or both for the benefit of the decedent prior to his/her death.



Proceeds of life insurance

The face value of life insurance on the decedent is included in the gross estate, if any one of the following conditions exists: · The proceeds are receivable by the estate.

before the alternate valuation date. The alternate valuation can be elected only if the valuation reduces the size of the gross estate and also reduces the amount of tax due.
Basis of property

· The proceeds are receivable by another for the benefit of the estate subject to a legal obligation to benefit the estate. · The decedent possessed incidents of ownership in the policy (such as the power to change beneficiaries, to revoke an assignment, to pledge the policy for a loan, or to surrender or cancel the policy). Example F: A mother owns a $500,000 life insurance policy. Her son is the beneficiary. When she dies, the $500,000 will be included in her gross estate, which also includes a ranch valued at $2 million. The federal estate tax on her estate of $2.5 million in 2006 is $230,000. Example G: A mother transfers ownership of her $500,000 life insurance policy to her son. Her son is the beneficiary. When the mother dies, the $500,000 is not included in her estate because she is not the owner. The federal estate tax is computed on the $2 million ranch. The federal estate tax in 2006 is zero. The mother's ownership of the life insurance policy (Example F) cost her estate an additional $230,000 in federal estate taxes.
Insurance on the life of another, owned by the decedent at his or her death, is also included in the gross estate. The amount included is the replacement value of the policy, which can be obtained from the life insurance company.
Transactions within three years of death

All property (real estate, stocks, and bonds) that a person owns has a basis for tax purposes. For example, a home purchased in 1977 for $47,000 has a basis of $47,000 even though its current value is $163,500. Property received by a donee as a gift from a donor during life has a carryover basis value. This means that the value basis in the hands of the donee is the same as it was in the hands of the donor.

Example H: A father gifts land to his daughter that is currently worth $1 million. The father paid $100,000 for the land. The daughter assumes her father's $100,000 basis in the property. If she sells the property for $1 million, she is responsible for a capital gains tax on the difference between the basis ($100,000) and the fair market value ($1 million). Thus, the daughter would owe a federal capital gains tax of $135,000 on the $900,000 profit (Assuming a tax rate of 15%).
Property that is received by a beneficiary from a decedent has a stepped-up basis. This means the value of the property is stepped up to the fair market value at the date of death of the owner.

Generally, the value of gifts (other than gifts of life insurance) made by a decedent is not included in the gross estate. However, interests in property otherwise included in the gross estate under the so-called "strings attached" provisions (or that would have been included had the interest been retained by the decedent) are included in the gross estate if transferred within three years of death. In addition, any gift tax paid by the decedent or his or her spouse within three years of death will be included in the gross estate for federal estate tax computation purposes.

Example I: If the father in Example H had died and willed the property to his daughter, she would have received a stepped-up basis on the property. This means the value in the property will be stepped-up from the father's $100,000 basis to $1 million. If the daughter sold the property for $1 million after her father's death, there would be no capital gains tax because she sold it at the stepped-up basis value.
Special use valuation on real property

Valuation of Gross Estate Generally, the value of the decedent's property interest for federal estate tax purposes is its fair market value at the date of death. The IRS defines the fair market value as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of all relevant facts. The personal representative may elect an alternative valuation of the assets as of six months after the decedent's death. If the alternate valuation is elected, then all assets must be valued as of the alternate date, or as of the date of their distribution, sale, exchange, or other disposition, if any of those events occurs

If the personal representative has an agreement signed by those receiving an interest in real property to assume personal liability for recapture of taxes, he or she may elect to value qualified real property as a farm or as its use in the closely held business, rather than at its fair market value. The special use valuation cannot reduce the decedent's gross estate by more than $900,000 in 2006 (indexed for inflation in subsequent years). For property to qualify for special use valuation, certain requirements must be met. The real property subject to special use valuation must comprise at least 25% of the gross estate and the property must pass to qualified heirs (a lineal descendant of the decedent's grandfather). Also, the real property, and other farm or business assets must comprise 50% of the gross estate.

The Taxable Estate Adjusted taxable gifts (total taxable gifts beyond the annual exclusion of $12,000 for each person) made by the decedent after December 31, 1976 are also included in the federal estate tax computation on the 706 United States Estate Tax Return.


The taxable estate is reduced by subtracting the allowable expenses and deductions from the gross estate. Allowable expenses include such items as: administration and funeral expenses, claims against the estate, obligations, and casualty and theft losses. Allowable deductions include the marital deduction and the charitable deduction.
Allowable expenses

of $500,000 pass to his wife. There is no tax on the estate at the death of the husband because of his exclusion of $2 million. At the wife's death, only the $500,000 left to her is included in her taxable estate. All of it is sheltered by the wife's applicable exclusion of $2 million. The result is no federal estate tax at the death of either parent and a $225,000 tax savings for the children. Example L: Assume that the husband has a ranch valued at $4 million, that he has children from a prior marriage and that the ranch land has been in the family for several generations. If he leaves his estate all to his wife, there is no estate tax at his death, because the total amount qualifies for the unlimited marital deduction. However, if the wife dies in 2008, the federal estate tax will be $900,000.
While the husband wants to provide for his wife, he also wants to be sure his children ultimately inherit the land. His plan would be identical to the one in Example K, except the section of land valued at $2 million would not be left outright to his wife, but would instead be placed in a qualified terminable interest property trust (QTIP). The terms of the QTIP trust require all income to be distributed to the wife for life, with the assets to pass to the husband's children at the death of the wife. With an appropriate election by the personal representative, the QTIP trust will qualify for the marital deduction at the death of the husband. While the property is subject to the federal estate tax at the death of the wife, there is no tax because the amount is equal to the wife's applicable exclusion of $2 million. The husband will be assured that his assets will pass to his children from a prior marriage following the death of his present wife because of the terms of the QTIP trust. Another alternative is for the father to create a by-pass or credit shelter trust to hold the assets equal to Dad's applicable exclusion ($2 million in 2006-2008, Example L above). The assets in the credit shelter trust could pass directly to his children upon his death. The law is very, very complex in this area. Contact an attorney or a certified public accountant for a full discussion of the factors to be considered to achieve family objectives and minimize taxes. Pre-June 2001 wills. All married couples who have written wills dated before of June 2001 should have them reviewed by an attorney to determine if the martial deduction clause overfunds the credit shelter trust and does not provide adequately for the surviving spouse.

Administration and funeral expenses. Deductible administration expenses include compensation to the personal representative who is responsible for settling the estate, fees to the attorney for handling legal aspects of the estate, and miscellaneous costs such as accountant's fees, court costs and expenses for selling estate property (if the sale is necessary to settle the estate). These deductions may be taken either on the estate tax return or the fiduciary income tax return, but not on both. Funeral expenses are also deductible. Medical expenses for the decedent, only if deducted on the estate tax return and not on the decedent's income tax return, are fully deductible. Claims against the estate. All debts of the decedent, such as property taxes accrued before death, unpaid income taxes on income received by the decedent during life, and unpaid gift taxes on gifts made by the decedent during life are deductible from the gross estate. Obligations. Unpaid mortgages and other charges against property, including the interest accrued to the date of the decedent's death, are deductible if the value of the property is included in the gross estate without reduction for mortgage or other indebtedness. Casualty and theft loss. Deductions are allowed for losses incurred during the settlement of the estate that arise from theft or casualties, such as storms or fires. However, the deduction allowed is only to the extent that the losses are not compensated for by insurance and if they are not deducted on the estate's income tax return.
Allowable deductions

Marital deduction. Generally, unlimited amounts of property can be transferred at death to a U. S. citizen spouse without a federal estate tax. However, fully utilizing the unlimited marital deduction at the death of the first spouse may result in higher taxes at the death of the second spouse. By taking advantage of the exclusion amount for the first deceased spouse, federal estate taxes can be minimized at the death of the second spouse.

Example J: Assume a husband has a taxable estate valued at $2.5 million in 2006 and that his wife has zero assets. If he leaves his estate all to his wife, there is no estate tax at his death, because the total amount qualifies for the unlimited marital deduction. However, if the wife dies in 2008, the federal estate tax will be $225,000. Example K: The couple could have developed an estate plan that utilizes a partial marital deduction. The husband's written will could have provided that $2 million of his $2.5 million estate pass directly to his children and the balance


Example M: Assume that a father has a $2 million estate and a will written before June 2001 that states that the credit shelter trust should be funded at his death to the maximum amount of the applicable exclusion. If he died in 2006, $2 million (the maximum applicable exclusion) would pass to the credit shelter trust and nothing would pass to his wife. That is not the result the father wants. He needs to change the terms of the credit shelter trust to adequately provide for his spouse. The father needs to contact his attorney to change the marital deduction clause in his will.

Charitable deduction. An unlimited deduction is allowed for the value of property in the decedent's gross estate that was transferred by will to or for the use of a "qualified" 501(c)(3) charitable, religious, educational or governmental organization.

($1,010,800 + $138,000 = $1,148,800). From the tentative tax, the applicable credit of $780,800 is subtracted (Table 1). The tax due is $368,000 ($1,148,800 tentative tax $780,800 applicable credit = $368,000). Example P: George gave his son $12,000 in 2006 which qualified for the annual gift exclusion. George then made a gift of shares in his ranch corporation valued at $1 million to his son in 2006. George did not have to pay a gift tax because the amount was equal to the applicable gift tax exclusion of $1 million which translated to the applicable credit of $345,800. Assume George dies in 2008 with remaining stock valued at $2 million. In 2008 the applicable credit is $780,000 but because George already used $345,800 of his available credit in 2006, the estate only has a $435,000 applicable credit remaining.
The applicable credits and applicable exclusions for both the federal estate tax and federal gift tax are listed in Table 1. A federal estate tax return (form 706) is required only when a taxable estate is valued at more than the exclusion amount. A federal gift tax is payable only when a gift is valued at more than the applicable exclusion amount. Credit for state death taxes. In 2005, the state death tax credit was repealed and replaced with a deduction for any death taxes actually paid to a state on the estate. Because Montana does not have an inheritance tax, a state death tax credit will not be allowed on the estate of a Montana decedent. Credit for tax on prior transfers. Partial credit is allowed against the tax for federal estate taxes paid on the transfer of property to the present decedent from a decedent who died within ten years before, or within two years after, the present decedent's death.

Example N: In his will, a 4-H leader has left land valued at $2 million to the Montana 4-H Foundation. The amount would qualify as a charitable deduction because the Montana 4-H Foundation has a 501(c)(3) designation.

Federal Estate Tax Rates Once the taxable estate is determined and any gift tax payable on gifts made by the decedent after December 31, 1976 subtracted, the federal estate tax rate is applied. The rates for 2006 through 2011 are provided in Table 2. The highest tax rates are reduced to 45% in 2007 through 2009. In 2010, the estate tax is repealed and in 2011, the highest tax rate returns to the old rate of 55% on estates of $3 million. This sunset provision repealing all of the 2001 changes at the end of 2010 was included to comply with the requirement of a Congressional Budget Act that changes do not increase the budget deficit for a fiscal year. Credits Against the Estate Tax The following credits are deducted from the tentative estate tax: the applicable credit (applicable exclusion), credit for state death taxes and credit for tax on prior transfers. Applicable credit. The applicable credit is a credit against the federal estate tax due or the federal gift tax due. The applicable credit amount in 2006 is $780,800. However, if a decedent had made taxable gifts of $1 million during life he would have used up $345,800 of his applicable credit so he would only have $435,000 of his credit remaining ($780,800 - $345,800 = $435,000). In 2011, the applicable credit returns to $345,800 (Table 1). The applicable credit translates into a dollar value that can be transferred during life without a federal gift tax or at death without a federal estate tax. The applicable exclusion increases from $2 million in 2006-2008 to $3.5 million in 2009. In 2010, the federal estate tax is repealed. In 2011, the applicable exclusion returns to $1 million. The applicable credit is applied against the gift or estate taxes otherwise payable. The actual value of an estate that may pass without an estate tax due during 2006-2008 is $2 million. In other words, during 2006-2008, the $780,800 applicable credit is equal to $2 million in assets that can be transferred without being taxed at death. However, the applicable credit is reduced by any taxable gifts made by the decedent.
Example O: Jack, who made no prior taxable gifts to his children, has an estate valued at $2.8 million in 2006. The tax on $2,500,000 is $1,010,800 (Table 2). The federal estate tax on the remaining $300,000 ($2,800,000 - $2,500,000= $300,000) is computed at a 46% rate which is equal to $138,000. The tentative tax totals $1,148,800

Filing of estate tax return If the gross estate of a decedent is more than the applicable exclusion amount ($2 million in 2006 plus taxable gifts made during life), Form 706, United States Estate Tax Return, is due nine months after the date of death. Extension of time to pay the tax A reasonable extension of time (not to exceed six months) to file the estate tax return, or related statements or documents, may be granted if it is impossible or impractical to complete the return within the normal nine-month period beginning at the decedent's date of death. However, an extension of time to file the return is not an extension of time to pay the tax. One-year extension. The personal representative may request an extension of time to pay the estate tax. A period not to exceed 12 months from the date fixed for the payment may be granted by the IRS when there is reasonable cause. However, interest accrues from the original due date. Reasonable cause extension. In addition, the personal representative, when showing reasonable cause, may be granted an extension of time for paying taxes for up to 10 years from the due date of the original payment of the tax liability.



However, interest accrues from the original due date. Fifteen-year installments. The estate tax can be paid in installments (of up to 15 years) if the value of the decedent's interest in a closely held business exceeds 35 percent of the decedent's gross estate. The estate makes an annual interest payment for a period not to exceed four years. Thereafter, the balance is paid in up to 10 annual installments of principal and interest. A special 2% interest rate is provided for deferred tax attributed to the first $1 million in value of the closely held business interest. The interest rate on deferred taxes on the remaining amount is 45% of the underpayment rate (federal short-term rate plus three percentage points). The rate has varied between seven and 11 percent since 1990. The Economic Growth and Tax Relief Reconciliation Act of 2001 expands the availability of installment payment of estate tax for the closely held business by increasing the number of shareholders or partners from 15 to 45. The provision has also been expanded to include qualified lending and finance business interests. The tax on these interests must be paid in five installments of principal and interest. This provision applies to estates of decedents dying after Dec. 31, 2001.

Further Information The Internal Revenue Service provides in-depth publications on Federal Estate and Gift Taxation. They can be ordered from the IRS (1-800-829-3676) or downloaded from the web at http:// www.irs.ustreas.gov. Additional information about major changes in the regulations on gifting as a result of the Economic Growth and Tax Relief Conciliation Act of 2001 are explained in MontGuide 199105. The publication is available free from your local MSU Extension Office. Or, send $1 for handling to MSU Extension Publications, P.O. Box 172040, MSU, Bozeman, MT 59717-2040. The MontGuide can also be downloaded from the web at http://www.montana.edu/wwwpb/pubs/ mt9105.html Acknowledgments Representatives from the following reviewed this MontGuide and recommend its reading by all Montanans who are in the process of estate planning.
· Business, Estates, Trusts, Tax and Real Property Section-- State Bar of Montana · Montana Society of Certified Public Accountants · Montana Association of Insurance and Financial Advisors

Changing Regulations The Economic Growth and Tax Relief Reconciliation Act of 2001 made substantial changes in federal estate tax laws. While this MontGuide discusses several of the major changes, you are encouraged to consult competent professionals such as an attorney or certified public accountant to keep abreast of regulations as they develop. Also, consult these professionals for estate tax planning for your individual situation.

Disclaimer This publication is not a substitute for legal advice. Rather it is designed to help inform persons about the basic provisions of the federal estate tax law and to create an awareness of the need for planning if a goal is to minimize the tax. There are numerous exceptions and conditions to some of the concepts discussed. Future changes in laws cannot be predicted and statements in the MontGuide are based solely on the laws in force on the date of publication.



Table 1: Applicable Estate and Gift Tax Credits and Applicable Exclusions 2006 - 2011*

Federal Estate Tax* Applicable Exclusion 780,800 780,800 780,800 1,455,800 Repealed 345,800 1,000,000 345,800 1,000,000 Repealed 345,800 1,000,000 3,500,000 345,800 1,000,000 2,000,000 345,800 1,000,000 2,000,000 345,800 1,000,000 2,000,000 345,800 1,000,000 Applicable Credit Applicable Exclusion

Federal Gift Tax

Year of Death

Applicable Credit

2006

2007

2008

2009

2010

2011

*Note: There is only one applicable tax credit. If the applicable credit ($345,800) is used up for gifting during 2006, only $435,000 remains available to offset the federal estate tax in 2006 (780,800 - $345,800 = $435,000).

Table 2: Federal Estate and Gift Tax Rate Schedule, 2006-2011 TAx On COluMn 1 2006 9,999 1,800 3,800 8,200 13,000 18,200 23,800 38,800 70,800 155,800 248,300 345,800 448,300 555,800 780,800 448,300 555,800 780,800 345,800 248,300 155,800 0 0 0 0 0 0 0 0 70,800 0 38,800 0 23,800 0 18,200 0 13,000 0 8,200 0 8,200 13,000 18,200 23,800 38,800 70,800 155,800 248,300 345,800 448,300 555,800 780,800 1,025,800 1,290,800 3,800 0 3,800 1,800 0 1,800 0 0 0 0 18% 20% 22% 24% 26% 28% 30% 32% 34% 37% 39% 41% 43% 45% 46% 46% 46% 2007-2009 2010 2011 2006 FEDERAl ESTATE AnD GIFT TAx RATES On AMOunT OVER COluMn 1 2007-2009 18% 20% 22% 24% 26% 28% 30% 32% 34% 37% 39% 41% 43% 45% 45% 45% 45% 2010 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2011 18% 20% 22% 24% 26% 28% 30% 32% 34% 37% 39% 41% 43% 45% 49% 53% 55%

TAxABlE ESTATE BRACkETS

COluMn 1

COluMn 2

FROM

TO

0

10,000

19,999

20,000

39,999

40,000

59,999

60,000

79,999

80,000

99,999

100,000

149,999

150,000

249,999

250,000

499,999

500,000

749,999

750,000

999,999

1,000,000

1,249,999

1,250,000

1,499,999

1,500,000

1,999,999

2,000,000

2,499,999

2,500,000

2,999,999

3,000,000

UNlIMITED



Estate tax computation example: Jack has an estate valued at $2.1 Million. The tax on the first $2,000,000 is $780,800. The remaining $100,000 is taxed at a 46% rate resulting in additional taxes of $46,000. The tenative tax of $826,800 ($780,800 + $46,000) is then reduced by the applicable credit amount of $780,800 for 2006 (From table 1). The taxes due on Jack's estate are $46,000.

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Copyright © 2006 MSU Extension Service We encourage the use of this document for nonprofit educational purposes. This document may be reprinted for nonprofit educational purposes if no endorsement of a commercial product, service or company is stated or implied, and if appropriate credit is given to the author and the MSU Extension Service. To use these documents in electronic formats, permission must be sought from the Extension Communications Coordinator, Communications and Public Affairs, 416 Culbertson Hall, Montana State University­Bozeman, Bozeman MT 59717; E-mail: [email protected]. To order additional publications, please contact your county or reservation MSU Extension office, visit our online catalog at www.montana.edu/publications, or e-mail [email protected]

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File under: Consumer Education D-11 (Estate Planning) Revised July 2006
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