Estate Taxes

Arizona does not have its own estate tax. However, there is a federal estate tax which a tax on your right to transfer property at your death.

Two important notes:

Assets transferring from a deceased spouse to a surviving spouse are not subject to the estate tax.
Estate taxes must be paid within nine (9) months of the decedent's passing.

An accounting of all assets and interests in an estate are taken at the date of death along with the fair market value for those assets. This total is the "Gross Estate".

Items in the gross estate: bank accounts, retirement accounts, investments, life insurance payouts, annuities, real estate, jewelry, artwork, business interests, etc.

Debts, mortgages, estate administration expenses and property passing to a surviving spouse or qualified charities can often be deducted to calculate the "Taxable Estate".

Taxable estates under the federal estate tax limits do not owe any estate taxes. Estates over the estate tax limit only pay taxes on the amounts over the federal estate tax limit.

In 2009, the estate tax limit was $3,500,000, meaning if the estate was less than $3.5M there was no estate tax due. Currently in 2010, there is no estate tax based on laws established in 2001 but if the laws are not changed, the estate tax limit will be $1,000,000 in 2011.

On April 2, 2009, the Senate agreed on S.AMDT.873, an amendment to S.CON.RES.13, a non-binding concurrent resolution setting forth the congressional budget for FY 2010, which was later passed. If enacted in the FY 2010 budget, a new $5,000,000 exemption level will be created with a maximum tax rate of 35%.

Below is a history of the estate tax along with the percentage of the tax depending on the amount over the estate tax limit:

For amounts not greater than $10,000, the tax liability is 18% of the amount.

For amounts over $10,000 but not over $20,000, the tentative tax is $1,800 plus 20% of the excess over $10,000.

For amounts over $20,000 but not over $40,000, the tentative tax is $3,800 plus 22% of the excess over $20,000.

For amounts over $40,000 but not over $60,000, the tentative tax is $8,200 plus 24% of the excess over $40,000.

For amounts over $60,000 but not over $80,000, the tentative tax is $13,000 plus 26% of the excess over $60,000.

For amounts over $80,000 but not over $100,000, the tentative tax is $18,200 plus 28% of the excess over $80,000.

For amounts over $100,000 but not over $150,000, the tentative tax is $23,800 plus 30% of the excess over $100,000.

For amounts over $150,000 but not over $250,000, the tentative tax is $38,800 plus 32% of the excess over $150,000.

For amounts over $250,000 but not over $500,000, the tentative tax is $70,800 plus 34% of the excess over $250,000.

For amounts over $500,000 but not over $750,000, the tentative tax is $155,800 plus 37% of the excess over $500,000.

For amounts over $750,000 but not over $1,000,000, the tentative tax is $248,300 plus 39% of the excess over $750,000.

For amounts over $1,000,000 but not over $1,250,000, the tentative tax is $345,800 plus 41% of the excess over $1,000,000.

For amounts over $1,250,000 but not over $1,500,000, the tentative tax is $448,300 plus 43% of the excess over $1,250,000.

For amounts over $1,500,000, the tentative tax is $555,800 plus 45% of the excess over $1,500,000.

For years before 2007, additional tax brackets applied for amounts over $2,000,000 with marginal rates of up to 55%.

Year	Estate Tax Limit
2001	$675,000
2002 - 2003	$1,000,000
2004 - 2005	$1,500,000
2006 - 2008	$2,000,000
2009	$3,500,000
2010	Repealed
2011	$1,000,000 ?

Married couples,
trusts and estate taxes

Married couples can "double" their estate tax exemption with a trust, such as a Disclaimer Trust, Bypass Trust or A-B trust.

Without a trust, when the first spouse passes, the surviving spouse inherits all the assets without paying any estate taxes. When the surviving spouse passes later, the surviving spouse has only his/her exemption. The opportunity to utilize the first spouse's exemption passed.

Using a Bypass Trust / A-Disclaimer Trust allows the surviving spouse to split an existing trust into two trusts: one for the surviving spouse and one for the deceased spouse. Assets are split between the two trusts so that each spouse can claim an exemption. This step must be done within nine (9) months of the first spouse's passing.

An A-B trust splits the assets before either passes. However, assets in the deceased spouse's trust are typically off-limits to the surviving spouse, unless the surviving spouse's trust is depleted and needs health, education, maintenance or support. Only income generated by the deceased's trust may be used freely by the surviving spouse. If the estate is under the estate tax limit, an A-B trust may limit the surviving spouse's use of assets. A Bypass Trust or A-Disclaimer may provide more flexibility.

Financial power of attorney

Mental health care power of attorney

Medical power of attorney

Living Will

Last will and testament

Testamentary trust

Revocable living trust

Special needs trusts

Other types of trusts

Children's Guardians

Probate

Estate taxes