A common misconception
is that probate exists as a means for the state or federal government to
collect
taxes. That is not the case.
Estate and inheritance tax rates are
based on the size of the estate and the relationship of the heirs to the
deceased. It is irrelevant to the taxing entities whether or not a probate
is conducted when determining the tax liability.
For example, assume that
a person gives $800,000 at his death to his children. It makes no difference
if the $800,000 comes to the children from probate or through a revocable
trust. There is greater cost if the estate is probated rather than passing
it through a trust, but the tax rates are the same. The tax is on the money
and property distributed after death, not whether or not it comes from
probate.
Some states will freeze
jointly-held property (such as bank accounts, real estate and brokerage
accounts) until the taxing entities have time to assess the value of the
decedent's interest in the property.
There is a lifetime
federal unified credit for gift and estate taxes of $1,000,000 through 2004.
Then for estates it rises to an unlimited amount in 2010 and then reduces to
$1,000,000. For gifts, the exemption remains at $1,000,000. This means that
no federal estate taxes will be owed unless an estate exceeds the unused
portion of the unified credit (the unified credit amount minus the value of
lifetime gifts). Under the Internal Revenue Code, a personal representative
can file a request with the IRS (and sometimes the state taxing agency) for
a final assessment of the taxes owed by the estate. The IRS has three years
in which to assess additional taxes. If the personal representative makes a
request for a prompt assessment, the IRS has to complete the assessment
within 18 months. After the assessment is done, the personal representative
can pay the tax, distribute the remaining estate to the heirs and be
discharged without any liability for future taxes.Click
here to view the entire article by
MICHAEL LYNN GABRIEL,
Esq.
