Understanding Estate Taxes
2. Expenses that reduce your estate
Estate taxes are different from, and in addition to, probate expenses which can be avoided with a living trust,* and final income taxes, which must be paid on income you receive in the year you die.
Federal estate taxes are expensive - in 2008, the tax rate is 45%. This means Uncle Sam could become your biggest heir! Some states also have a death/inheritance tax.** And estate taxes must be paid in cash, usually within nine months after you die.
The estate tax is, in effect, a "double tax." You've already paid income taxes on the money and assets that make up your estate. Now your estate may have to pay taxes on these assets again.
*Probate is a court-controlled process through which your will is verified, your debts are paid and your assets are distributed. Probate costs are usually estimated at 3-8% of an estate's gross value.
**Contact us for more information.