Legal News Alert #102

Do Not Die This Year and Save $210,000

Sounds gruesome, doesn't it? But the reality is that when you die, the federal government charges a tax against your estate. However, there is some relief from this "death" tax. For 2003, the amount of the exemption for each person is $1,000,000*. This means that if you die in 2003 and leave an estate which has a value of $1,000,000 or less, there is no federal (or state) estate tax*. That's the good news. The bad news is that for every dollar over $1,000,000, the tax is very steep as follows:

Exemption Increases to $1,500,000 on January 1, 2004

Because the individual exemption increases to $1,500,000 on January 1, 2004, the amount of estate tax savings is up to $210,000 for those who die on or after that date and leave an estate valued at over $1,000,000. For example, if you had an estate worth $1,500,000 and you died at 11:59 PM on December 31 of this year, your estate would owe a death tax of $210,000. However, if you died two minutes later at 12:01 AM on January 1, 2004, your estate would owe no tax! And it's not uncommon these days to leave an estate valued at over $1,000,000, especially when you consider that the "value" of the estate as defined by the government includes the value of real estate, 401K's, IRA's and life insurance policy death benefits.

Live Long and Prosper

Spock had it right. Because the amount of the estate tax exemption increases through 2009, the longer you live, the less tax your estate is liable to pay. The estate tax exemption increases as follows:

Beyond 2009?

In all candor, who knows? However, most political analysts believe that it would be VERY unpopular to repeal or reduce the exemption. In addition, it is reasoned that it would be VERY unfair to have no tax charged against the $3,500,000 estate of a person who died at 11:59 PM on December 31, 2009 and then have an estate tax in the millions for someone who died at 12:01 AM on January 1, 2010. In any case, let's hope that all of us who read this are around long enough to have to deal with this issue.

* A person's individual death tax exemption is reduced by the amount of each gift given in any one year to any one person which exceeds the annual gift exemption. For 2003, the amount of this annual gift exemption is $11,000 per person. For example, if a person gives a gift to another person in 2003 which has a value of $12,000, then at time of death, the death tax exemption will be reduced by $1,000.

NICHOLS & EBERTH, P.C.
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