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Rocket Lawyer Family law

The Estate Tax Changes and You: A Flowchart

At Rocket Lawyer, we want to help you decode the recent (and potential) estate tax law changes, and how they will affect you and your family.  With the current disappearance of the estate tax for 2010, plus the various routes Congress could take for next year and even retroactively, it’s very confusing for most people to understand.  At the same time, it’s vitally important to plan for the various possibilities, or you risk burdening your loved ones with negative tax consequences after your death.

To help cut through the confusion, we’ve created this estate tax flowchart to show you how the changes may affect your estate.  Scroll down for more background on the estate tax changes.

Possible Estate Tax Changes: What They Mean For Your Estate:

Background on Federal Estate Tax Changes in 2010

In 2001, Congress passed the Economic Growth Tax Relief Reconciliation Act (EGTRRA) which gradually reduced the exemption level and top tax rate for estate taxes through 2009, with no estate tax in 2010. On December 31, 2010, EGTRRA sunsets and the estate tax returns. Congress has not yet passed new estate tax legislation, so the details of the future estate tax are up in the air.

A few proposals are under consideration:

  • President Barack Obama has proposed to make the 2009 estate tax law permanent. This would set the estate tax exemption level at $3.5 million with a flat rate of 45%.
  • Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) have proposed setting the estate tax exemption level at $5 million exemption with a flat rate of 35%.
  • Representative Jim McDermott (D-WA) has proposed setting the estate tax exemption level at $2 million, indexed for inflation with a graduated rate structure. Estates less than $5 million would be taxed at 45%, estates over $5 million would be taxed at 50%, and estates over $10 million would be taxed at 55%
  • Senators Bernard Sanders (I-VT), Tom Harkin (D-IA), and Sheldon Whitehouse (D-RI) have proposed setting the estate tax exemption level at $3.5 million with a graduated rate structure. Estates valued less than $10 million would be taxed at 45%, estates over $10 million would be taxed at 50%, estates over $50 million would be taxed at 55%, and estates over $500 million would be taxed at 65%.
  • Congress may abolish the estate tax completely.
  • Congress may do nothing. If Congress does not pass a new estate tax, the estate tax will revert to 2001 levels with $1 million exempt and a top tax rate of 55%.

For most people, the best way to prepare for the possible estate tax changes is to consult with an estate tax lawyer.

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3 Comments

  1. Johnny Silva says:

    Flow chart was very helpful. Do you know where I can get flow charts from death of first spouse to death of second spouse for: Federal and Illinois state income, estate and gift taxes? Are there other taxes I need to be aware of?

    Also, incorporating who gets the various assets: surviving spouse, A-B trust, children, grandchildren, friend and charities.

    Also, how different types of assets: Tax deferred assets (Ira, 403b, 401, Sep etc.), non-deferred tax assets (Roth IRA’s, bank accounts, house, stock etc.)

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