Video: What Are Estate Taxes?
Note: The content of this video applies only to the years 2010 and earlier. It is included here for reference only.
Hello, I'm Sara from TurboTax, with some information about the estate tax. It's hard enough dealing with the loss of a loved one without having to worry about paying more taxes, but the good news is most of you will never have to deal with the estate tax. The estate tax generally affects only the top two percent of the wealthiest individuals and was never intended to apply to the average taxpayer.
However, here is how it works:
When a taxpayer passes away the government looks at the amount of property and money that a person leaves to their heirs. Each year the government determines the value of this property which can be passed on without having to pay estate taxes on it. The amount changes from year to year but it generally ranges from one million dollars to 3.5 million dollars. These high exclusion amounts ensure that most Americans never have to worry about the estate tax.
However, if you think that the estate tax might apply to you there are many things you can do to prepare and avoid it. Often times, you can donate a portion of your wealth to your favorite charity to reduce the value of your estate or leave everything you own to a spouse. Luckily the estate tax law permits a spouse to inherit all of your property without any tax consequences.