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Each person is given a credit that may be
applied to the amount of Federal estate tax owed by that person at death,
which is referred to as the "unified credit" due to its relation to both the
Federal estate tax and the Federal gift tax.
The unified credit is a fixed dollar amount granted to every person's estate
that can be applied to the actual amount of Federal estate tax that is owed
by that estate.
However, rather than discussing the unified
credit, people often discuss the dollar amount of the taxable estate that
the unified credit allows to pass free of the Federal estate tax. This
is known as the "applicable exclusion amount."
The year of a person's death determines the
Federal estate tax rate, along with the top tax rate and unified credit
amount.
|
Year of Death |
Applicable
Exclusion Amount |
Unified Credit
Amount |
Top Tax Rate |
|
2007 |
$2,000,000 |
$780,800 |
45% |
|
2008 |
$2,000,000 |
$780,800 |
45% |
|
2009 |
$3,500,000 |
$1,455,800 |
45% |
|
2010 |
No estate tax |
|
2011 |
$1,000,000 |
$345,800 |
55% |
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As shown by the preceding table, a unified
credit amount of $780,800 is available to those who die during 2008.
The applicable exclusion amount during that same year is $2,000,000.
In other words, a $2,000,000 taxable estate will
produce $780,800 of Federal estate taxes, which is equal to the amount of
the unified credit granted during 2008. This is comparable to saying
that the $780,800 unified credit excludes $2,000,000 from the Federal estate
tax.
Under EGTRRA (The Economic Growth and Tax Relief Reconciliation Act of
2001), the applicable exclusion amount varies for different years as the
Federal estate tax is phased out through 2010.
Basically, the dollar value of the taxable
estate that is less than or equal to the applicable exclusion amount is
free of tax and the amount of the taxable estate that exceeds the
applicable exclusion amount is taxed at the top tax rate.
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