It depends. If you do the right planning required to avert having an estate tax liability, then the answer is no. we have many tools and techniques to effectively plan for estate tax contingencies – you just need to do the planning. The Federal Estate Tax is calculated on the value of the assets in your estate at the time of your death (less encumbrances). A portion of the estate is “exempt” from tax. The amount over the exemption amount is subject to the Federal Estate Tax. The amount of the exemption has shifted and changed over the years. It was $600,000 during much of the early 1990s.
In 2001, Bush enacted a tax that gradually increased the estate tax exemption amount to $3.5MM in 2009. Because that law was about to sunset, in December of 2010, a new temporary law was passed for a two year term which raised the exemption to $5MM per person. That law is also set to expire at the end of 2012. On January 1, 2013, if there is no new law passed, the new estate tax exemption will be $1MM per person with a tax rate of 41-55% on the amount over $1MM in your estate. Although married people who are US citizens can easily take advantage of the unlimited marital deduction and leave everything to their spouse estate tax free, when that spouse later dies, there could be an estate tax on his or her estate. There are ways to plan to maximize the use of both spouses’ federal estate tax exemptions in their revocable trust.