Understanding Estate Taxes
3. Individual estate tax exemption
Your estate will have to pay estate taxes if its net value when you die is more than the "exempt" amount set by Congress at that time. How much of your estate will be exempt depends upon when you die.
For example, in 2009, the federal estate tax "exemption" was $3.5 million. Currently, in 2010 there is no federal estate tax; it has been "repealed," but only for one year. Under the current law, it is scheduled to come back in 2011...with the exemption back at $1 million.
Even though we have had this schedule for several years, most estate planning professionals fully expected Congress to do something before 2010 arrived, even if it was only to extend the 2009 federal estate tax laws into 2010. But Congress was so consumed with health care reform that it did not act on the estate tax before the Christmas break.
Many believe that Congress will want as many tax dollars as possible to help pay for its spending programs and will act soon to reinstate the estate tax, possibly at the 2009 rates. We don't know what Congress will do or when it will act, if at all. But since it looks like the estate tax is still in our future, it's important to understand how it can affect you and your family.