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A Timely Death

Timing is everything, even in death. For some, the year 2010 will be a good year to

Marlene Cooper

die because persons dying in 2010 can pass their entire estate to their heirs free of death taxes!

You might ask "what are death taxes"? Death taxes, also known as estate taxes or inheritance taxes, are those taxes assessed on the wealth you transfer to your heirs when you die. You might think it is unfair that you are taxed on income when you first receive it and then you may be taxed again when you try to pass the estate you accumulated during your lifetime on to your children or other heirs. This is in effect double taxation and the estate tax rate is one of the highest taxes of all - - 45% for 2009. The estate taxes are determined by the year the person (decedent) passes away, not the year the wealth is transferred. Because the amount exempt from taxes and the estate tax rate is different in 2009, 2010 and 2011, the year a person dies might have a profound effect on his or her estate.

When President G. W. Bush took office, the estate tax was imposed on estates valued over $675,000. In other words, the first $675,000 of a decedent's estate was exempt from the estate tax. President Bush immediately raised the amount that can be passed free of estate taxes to $1 million. The exemption amount has increased since then and is currently at $3.5 million. In 2010 the exemption is unlimited, so that persons dying in 2010 can pass any amount of inheritance on to their heirs free of any estate tax!

However, for those unlucky enough to die in 2011 or after, the exemption amount will again be $1 million and the estate tax rate will be 50%. As an example, let's say someone has an estate worth $5 million dollars. If the person dies in 2009, his or her heirs will pay $675,000 in federal estate taxes (45% of the amount over $3.5 million, a taxable estate of $1.5 million). On the other hand, if the person dies in 2010, there are no estate taxes due. If the person dies in 2011, the estate taxes are $2 million (50% of the amount over $1 million, a taxable estate of $4 million). Thus, taxes on the same $5 million estate can be either $675,000, zero, or $2 million depending on whether a person dies in 2009, 2010 or 2011!

Of course, the tax laws can and do change and some think that these tax laws will change between now and 2011. We will have to wait and see. It will also be interesting to see how the number of deaths in 2010 (especially among the well-heeled) compares with other years given the legality of euthanasia in some states.

(Marlene S. Cooper is a native of Pasadena, a graduate of UCLA, and has been an attorney for nearly 30 years. Her practice is focused entirely on estate planning and probate. You may obtain further information on estate planning and probate at www.marlenecooperlaw.com. You may also contact Attorney Cooper directly at (626) 791-7530, or by e-mail at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . The information in this article is of a general nature and not intended as legal advice. Seek the advice of an attorney before acting or relying upon any information in this article).

 

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