Inheritance tax, which is also called estate tax at times, has generally been seen by many critics as socialistic wealth redistribution. Supporters of inheritance tax claim that it helps keep families from amassing huge fortunes and thereby creating an American aristocracy much like those in European countries of the past. Regardless of which side you're on when it comes to inheritance tax, you will deal with it if you're lucky enough to have gained wealth.
Defining what the current inheritance tax rate and its limits is complicated. Before the reduction in inheritance tax, estates were taxed at rates that began at thirty seven percent and sometimes even went as high as fifty five percent. Inheritance tax is generally only levied on assets that are worth more than $1 million.
However, President Bush's tax cuts included a provision that phased out the inheritance tax rate for the next few years. This stroke of great luck benefitted those with large pieces of real estate such as farms that have been passed down from generation to generation or small businesses, because it meant that assets could be passed down without a large chunk being taken out due to taxation. This can be achieved in two different ways. One way is by increasing the amount that is exempt from the inheritance tax rate and another way is by decreasing the rate of the inheritance tax itself.
Based on IRS inheritance tax laws, an inheritance tax only needs to be filed if an estate is valued to be more than $3,500,000 in 2009. In addition, it is also states that the maximum inheritance tax rate applied to any amounts that are in excess of $3,500,000 is forty five percent. In 2010, the inheritance tax rate drops to zero percent. What this means is that for those that die in the year 2010, their heirs would not have to pay any inheritance taxes, even if you passed $20 billion onto them.
There is one warning that inheritance tax payers need to heed, and this is that Congress made sure that this law sunsets in 2011. What this means is that on 1 January 2011, the inheritance tax rate will go back to the levels it was at pre-Bush. Practically speaking, this means that if you are a person of means, there is a great difference between dying on December 31, 2010 as opposed to dying on January 1, 2011!