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Estate Planning Tax Facts


The estate tax is designed to ensure that enormous amounts of money are not passed on tax-free from generation to generation. However, tax cuts initiated by former President George Bush in 2001 allowed the wealthy to keep more of their money in the family. Under the cuts, the amount of money that can be passed on to heirs tax-free was $3.5 million in 2009, up from $2 million in 2008. Those tax cuts end in 2010, the year when the federal estate tax is repealed. However, in 2011, federal officials plan to reinstate the estate tax and allow estate holders to pass on only $1 million tax-free.


One surefire way to reduce the amount of taxes on your estate is to give money away in the form of gifts. Federal law allows owners of estates to pass up to a certain amount per year without being taxed. This amount is called an "exclusion," and it can be given in the form of cash and assets. As of January 2009, the exclusion for gifts was $13,000, up from $12,000 in 2008, according to the Internal Revenue Service. The IRS excludes gifts in the form of political contributions, tuition and medical expenses. Estate holders can give gifts to anyone they want except their spouses.

Family Limited Partnerships

Setting up family limited partnerships is another strategy to protect an estate. In this type of partnership, parents maintain control of the organization as general partners while their children serve as limited partners. Parents transfer all of their assets into the partnership. Using the annual exclusion limit dictated by the IRS, parents can "gift" their shares in the partnership to their children. Family limited partnerships are considered a legitimate way to protect an estate. However, the IRS has eyed these organizations closely as part of an initiative to crack down on tax evasion.

Marital Deductions

Estates whose owners leave all their money to their surviving spouses are not subject to an estate tax. This is called a marital deduction. The point of marital deductions is to refrain from taxing an estate until both people have died. However, this type of deduction is not allowed if the surviving spouse is not a citizen of the United States. A marital deduction is an advantage to the surviving spouse. But estates are subject to other taxes. In 2008, for instance, Maryland created a new 6.5 percent tax bracket for millionaires.This means that surviving spouses whose estates are worth more than $1 million must pay a tax.

Filing Estate Taxes

The deadline for filing estate tax returns occurs nine months after the estate owner dies. You may request a six-month extension from IRS officials. Depending on the size of the estate, you may want to hire an attorney to represent you.

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