From About.Com
Prior to the estate tax reduction, estates were taxed at rates beginning at 37 percent and going as high as 55 percent. Generally, the estate tax only applied to assets exceeding $1 million.
Included in President Bush's tax cuts, however, was a provision to phase out the estate tax rate over the next few years. For families with large real estate holdings such as farms that have been held for generations or small businesses, this stroke of good luck will ensure that assets are passed onto posterity without Uncle Sam taking a majority of the bounty. This would be accomplished in two ways: 1.) by raising the amount exempt from the estate tax rate, and 2.) lowering the estate tax rate itself.
According to the IRS literature, an estate tax filing need only be made if the value of an estate exceeds the following amounts:
2005: First $1,500,000 in assets
2006-2008: First $2,000,000 in assets
2009: First $3,500,000 in assets
In addition, the maximum estate tax rate applied to the amounts in excess of these figures are as follows:
2005: 47 percent
2006: 46 percent
2007- 2009: 45 percent
In 2010, the estate tax rate drops to zero percent; if you die in that year, your heirs would not pay taxes, even if you passed on $20 billion!
One caveat: Congress ensured that the law sunsets in 2011. That is, on January 1st, 2011, the estate tax rate will return to its pre-Bush levels. Practically speaking, this means the difference between dying on December 31, 2010 and January 1, 2011 can mean 55 percent of your estate if you are person of means!
