Monday, January 09, 2006

The new Federal estate tax exclusion for 2006

Some good news – the new Federal estate tax exclusion increased in 2006 to $2 million per person. In the past ten years, that amount has increased over 230 percent, as the figure is up from $600,000 in 1996. Count on this tax exclusion figure to remain in effect until 2009, then the amount is scheduled to increase one more time to $3,500,000 per person. After 2010, it will supposedly be repealed altogether.

Estate tax differs from income tax in that income tax is owed every year on any revenue. Estate tax is owed on the net value of your estate at the time of your death if you leave your assets to any beneficiary other than your spouse. To break this down, let’s say you pass away and leave your entire estate to your children. Your estate is made up of everything you own and includes such items as residential property, life insurance proceeds, IRAs, automobiles, jewelry, cash accounts, etc. If you total the amount of all assets and subtract any debts that you may owe against property or automobiles, the remaining value is known as your "net estate value" and that is the “net value” that could be subject to estate tax.

Important: Your C.P.A. is the best person to educate you about estate taxes.

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