Estate, inheritance, death taxes explained

The goal with estate taxes is to try to pay the minimum tax by the use of deductions, exemptions, and credits. The first rule is that an unlimited amount can be passed to a surviving spouse without one dime of death tax being paid. There will probably be a whopper of a death tax paid upon the second death but there typically is no tax upon the death of the first spouse. The second rule is that one can pass assets to those who are not the spouse of the decedent, without a tax, an amount equal to the exemption equivalent. This does not mean that one can pass the exemption equivalent to each of the non-spouse beneficiaries rather, in the aggregate, this is the amount that can be passed without a tax. The exemption equivalent is scheduled to go up in stages between year 2001 and year 2009 until it reaches $3,000,000. The exemption equivalent for each year is listed below. (Click here to see a discussion of potential Estate Tax Repeal.)

In advanced planning cases, estate tax reduction usually revolves around three major approaches: gifting through the use of discounting, life insurance, or charitable devices. Any of these methods are highly technical and beyond the scope of this article.

Year	Estate Tax Exemption Equivalent (see below for definition)
1997	$600,000
1998	625,000
1999	650,000
2000	675,000
2001	675,000
2002	1,000,000
2004	1,500,000
2006	2,000,000
2009	3,500,000
2010	Repeal
2011	Tax Returns at 1,000,000 exemption

Estate Tax Exemption Equivalent:
The amount which you can leave at death without incurring an estate tax (death tax). The excess over this amount, not the total, is subject to estate tax. So if you die with $700,000 of net worth in 1998, the exemption equivalent would be $625,000 and the excess of $75,000 would be subject to tax. The tax at this level of wealth would be 37% for a tax of $27,750.

If you want to actually calculate your estate tax, Fidelity Investments has a calculator on their WebSite at http://personal.fidelity.com/planning/estate/?bar=c (follow the "Estate Tax Calculator" link)." While Fidelity is generally considered to be a good investment fund family that provides good advice, I do not guarantee the accuracy, validity, or anything else about their calculator or anything else on their site (or for that matter, anyone else's site).