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Estate Tax Planning

Federal Estate Tax

There is a separate federal estate and gift (and generation-skipping transfer) tax system that taxes everything you own at your death. This includes life insurance, jointly held property, retirement benefits, annuities, personal property, real estate (yes, even the kitchen sink) and more. Added to this amount is all lifetime gifts that exceeded the annual exclusion ($14,000 per year per beneficiary in 2013), for which a gift tax return was or should have been filed. This is your “gross estate”.

Exemption Amount

If your gross estate exceeds the exemption amount then a Federal Estate Tax Return must be filed within 9 months after death. The current federal estate tax exemption amount for 2013 decedents is $5,250,000. The amount is schedule to increase annually for inflation. The Illinois estate tax exemption amount is $4,000,000.

Deductions and Credits

Even if your gross estate exceeds the exemption equivalent, various deductions and credits may reduce the value of your “taxable estate” to below the exemption amount resulting in no tax being due. Deductions include funeral expenses, decedent’s debts and administration expenses (e.g. attorney’s and executor’s fees). There are a variety of credits, most important among them is the unlimited marital deduction. This means that qualified transfers to (U.S. citizen) surviving spouses are not be subject to estate taxation.

Click here for how the unlimited marital deduction can be a double-edged sword and why estate tax planning is particularly important for married couples whose combined estates exceed the exemption amount.

A few estate tax online estate tax calculators* to help determine exposure:

*These calculators are linked for convenience only and should not be used as a substitute for consulting with a qualified estate planning attorney to determine your estate tax exposure and planning options.

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