"Living Trust Secrets
Avoid Probate & Save Estate Taxes"
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Part 4: How to Transfer Your Assets into Your Living Trust
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Much of the estate planning process focuses on reducing or eliminating estate taxes. The U.S. government imposes an estate tax on the transfer of your property to others both during your lifetime and when you pass away. This estate tax is known as the Unified Gift and Estate Tax.
New estate tax law:
In 1976, 1981, 1986 and in 2001, Congress extensively overhauled the federal estate tax and gift tax laws. With the exception of a law providing for a marital deduction in 1948 these were the first major changes in these laws since 1942. As a result, estate tax payments were assessed only against the wealthy and the moderately wealthy. With these estate tax laws, the majority of the population benefited since smaller estates did not have to pay the estate tax.
As explained above, not everyone has to worry about estate taxes. If your estate falls under the government exemption your trustee/executor does not have to file an estate tax return (Form 706) and pay the required estate tax within 9 months of your death.
Will your estate have to pay estate taxes?
Your estate will have to pay estate taxes if the net value (gross assets minus debts) when you die is more than the exemption amount set by Congress. The exemption equivalent is available to each U.S. citizen or resident. However, under the new estate tax law signed June 7, 2001 by President Bush, the estate tax will be gradually decreased until it falls to zero in 2010. Then on January 1, 2011, the estate tax law will revert to current estate tax laws unless Congress revisits the issue. See table ET-1 for the estate tax exemption equivalent. For your benefit we compared the old law to the new law.
| Table ET-1 (Estate and Gift Tax Rates and Unified Credit Exemption Amount) |
| Old | New |
| Year | Exemption Equivalent | Top Tax Rate | Year | Exemption Equivalent | Top Tax Rate |
| 2001 | $675,000 | 55% | 2001 | $675,000 | 55% |
| 2002 | $700,000 | 55% | 2002 | $1,000,000 | 50% |
| 2003 | $700,000 | 55% | 2003 | $1,000,000 | 49% |
| 2004 | $850,000 | 55% | 2004 | $1,500,000 | 48% |
| 2005 | $950,000 | 55% | 2005 | $1,500,000 | 47% |
| 2006 | $1,000,000 | 55% | 2006 | $2,000,000 | 46% |
| 2007 | $1,000,000 | 55% | 2007 | $2,000,000 | 45% |
| 2008 | $1,000,000 | 55% | 2008 | $2,000,000 | 45% |
| 2009 | $1,000,000 | 55% | 2009 | $3,500,000 | 45% |
| 2010 | $1,000,000 | 55% | 2010 | No Tax | Repealed |
| 2011 | $1,000,000 | 55% | 2011 | $1,000,000 | 55% |
The new estate tax law increases the exemption amount and reduces the top estate tax rates over the next several years. For example, if you die in 2005 with a net worth of $1,300,000. Your heirs will not pay any estate tax. If the law had not changed, then your heirs would have had to pay estate tax on $350,000 ($1,300,000 minus the old 2005 exemption of $950,000). However, if Congress does nothing to extend the estate tax law before January 1, 2011, it will revert to the existing tax law.
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