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12. Estate Taxes and Wills

Estates are subject to two kinds of taxes: Federal Estate Tax and State Death Tax. The federal estate tax has a minimum of 18% and a maximum of 45%. There is, however, an exemption from this tax if the value of your estate is below a certain threshold. In 2009, an estate worth less than $3,500,000 would not be subject to federal estate tax. This exemption amount increases annually as follows:
  • 2009 - $3,500,000
  • 2010 - unlimited
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The future of estate tax is uncertain. Under current law, there will be no estate tax in 2010 – in other words, the exempt amount will be unlimited. This phase-out, however, could be short-lived. The federal estate tax is scheduled to be reinstated in 2011 unless further legislative action is taken.

In some states (such as California), there is no separate state death tax and you are not required to file a CA Estate Tax Return. However, there are states that impose a separate state-based estate tax. Additionally, even if you reside in a state without an estate tax, you may still be subject to tax if you hold property (like real estate) in a state that does have an estate tax. For more information on how your estate will be taxed, it is recommended to consult an estate planning attorney.
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