By: Farrah C. Ramdayal, Attorney at Law. Dearborn, Michigan.
Everyone Has an Estate
What is an Estate? According to The U.S. Internal Revenue Code, “the value of the gross estate of the decedent shall be determined, by including to the extent provided for in this part, the value at the time of his death of all property, real or personal, tangible, or intangible, wherever situated.”
Contrary to popular belief, everyone has an “estate”, whether it’s worth $1 or $100 million. An individual’s estate does not only include a person’s “real estate” nor is it referring strictly to one’s probate estate; instead, your estate includes all the property over which you have some interest at the time of your death
Federal Estate Taxes
Under U.S. tax law, upon the death of any U.S. citizen or resident, an estate tax is charged on the transfer of that person’s estate to beneficiaries or heirs. However, a credit is applied to the estate of every decedent against the tax.
“Estate” Also Includes Certain Unowned Property
Your estate can also include certain property that you don’t own at your death (remember, the Internal Revenue Code definition refers to one’s “interest” in property and not “ownership”). Here are some examples of such property:
- Certain gifts made within 3 years of the decedent’s death;
- Certain property held by the decedent for life only (aka a “life estate”);
- Certain annuities, including those with income still payable after the decedent’s death;
- Property over which the decedent had a “power of appointment”;
- Life insurance owned by the decedent regardless of who is named beneficiary;
- Life insurance payable to the decedent’s estate;
- Certain disclaimed property.
So Why Worry About It?
Because if Congress does not agree by the end of 2012, the estate tax is set to revert to pre-2001 levels. As of this date, estate tax rates for 2013 and beyond are set to increase to a maximum of 55% (up from 35% in 2011 and 2012), and only the first $1 million of one’s estate (down from $5.12 million in 2012 and $5 million in 2011) would be exempt.
Anyone whose estate is valued under $1 million now, but could grow over time and circumstance to well over $1 million, could have an unexpected estate tax in the future.
Should You Wait to Plan?
No, because estate planning encompasses much more than just estate tax planning!