What is the Estate Tax?

If there is on tax out there that bothers far more people than it ever touches, it is the estate tax.  What is it and when should you be concerned?

The estate tax is a tax that is owed, by the estate of a deceased person, to either the federal and or state government if the person had a net worth over a certain amount.  That amount is referred to as the exemption level; if the net worth is below the amount, the estate is exempt.

The current federal exemption level is $5 million for an individual.  However, unless Congress takes action before the end of the year, it will revert back to $1 million per individual on January 1, 2013.  Net worth means assets, minus liabilities.  Probate and non-probate assets are included in the review.  As are many life insurance policies -- something that surprises quite a few clients.

Given the exemption levels, most Americans will live and die without the tax ever effecting them directly.  Yet, many people experience stress and worry.  Some states do have their own version of an estate tax.  At the time of this blog post Wisconsin, where I live, does not have an estate tax.

If your assets, minus liabilities, including life insurance are bumping the $1 million mark AND Congress does not take action to raise the exemption, you may want to learn more about ways to minimize and tax liability.  An attorney, CPA, or fee-based financial professional are all excellent resources.