How to Reduce Estate Tax After Death
The federal estate tax is levied on the assets of individuals after their death. The tax is controversial and subject to frequent change by the U.S. Congress. The tax is based on what is called the gross estate of the decedent, which includes all his assets at the time of death, including those held in trusts, and even some gifts or transfers made within three years of his passing. There are five types of deductions that the estate of a decedent can use to reduce estate tax after death.
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Instructions
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Use the marital deduction (if possible). The IRS treats spouses as a single unit for wealth transfer purposes, so there is no estate tax levied on assets that pass directly to the spouse of the decedent (not to a trust or other entity), provided the spouse is a United States citizen. The transfer must not be in the form of a life estate or other terminable interest in which another party receives partial ownership or enjoyment. The amount of the marital deduction is unlimited.
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Give to charity. Assets that pass directly from the estate to a designated charitable or governmental organizations can be deducted from the gross estate and made not subject to the estate tax. Donations made by beneficiaries do not count.
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Claim mortgages and debt. Debt owed by the estate of the decedent can be subtracted from the gross estate. If the amount of the debt is in dispute, only the amount conceded by the estate can be deducted.
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Deduct administration expenses. The cost of administering an estate can also be deducted before the estate tax. These costs include legal fees and payments to an executor.
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Deduct losses during administration. It sometimes occurs that the value of a decedent's estate decreases after his death through changes in market conditions and assessments of asset value. These losses can be deducted from the gross estate so that it represents fair value at the time of the tax.
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Tips & Warnings
Most people don't have to pay the estate tax because a credit is provided that covers smaller estates. If the decedent's estate is large enough to trigger estate tax liability, it's highly recommended to consult a federal tax professional.
Though a decedent's entire estate can be excluded from the estate tax by transfer to a spouse, the tax will become due upon the surviving spouse's death unless steps are taken in advance to limit estate tax liability.
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Elvis De Leon
Nov 17, 2009
How to Reduce Estate Tax After Death- Who wouldnt have known! Thanks! 5*
