Estate Taxes

Like Income Taxes the U.S. government bases its taxation of Estates on the value of world-wide property holdings of its U.S. citizens living abroad or at home. The federal Estate Tax is a tax on the transfer of property from your estate to other individuals or entities. Basically an estate is valued at date of death or six months after date of death. Everything you own is reduced by everything you owe plus final expenses such as hospital care and funeral costs. Administrative, legal and accounting fees further reduce the value of the estate.

From 2006 - 2008, you can pass $2,000,000 (unified credit exemption) tax free to your heirs. An Estate Tax Return - Form 706 - must be filed if the UCE is exceeded. Or if the U.S. citizen made substantial lifetime gifts, an estate tax return may be required even though the value of the decedent's worldwide assets is less than the UCE at death. If you believe your estate to be valued in excess of the UCE, you should consider some serious estate planning, because estate taxation begins at 18% and ends at 46%.

In order to file the tax return for the estate, your Estate Tax Return preparer must:

A) Determine what your estate owns in full and in part:

Real Estate - anything connected to land
Bank Accounts - checking and savings
Personal Property - everything of value
Investments - stocks, bonds, money market accounts, mutual funds
Insurance Policies - face value to beneficiary
Pension Funds - value invested
Vehicles - new and old
Business Interests - proprietary and property value interests
Patents, Copyrights and Royalties

B) Determine what your estate owes:

Consider any mortgages, loans, obligations, notes, bills, invoices, etc.

C) Add to indebtedness any final expenses. Also include professional fees.

D) Calculate preliminary Net Worth (A - B - C)

E) From preliminary Net Worth subtract the Federal Estate Tax Exemption Amount ($2.0 million for 2006).

F) Prepare tax return(s)