Although the estate tax is currently in limbo, experts don’t expect the free pass to last long. When Congress failed to act in 2009, the estate tax effectively fell off the books as of January 1, 2010. That means that if a loved one dies this year, the estate will not be taxed.
But unless Congress takes action, the estate tax is set to renew in 2011 with a much smaller exemption amount of $1 million.
What does that mean for you?
When a person passes away, it is the responsibility of the estate executor to come up with the net worth of the estate and paying taxes on any amount above the exemption.
Estate taxes are due nine months after the death of the owner and since taxes can only be paid with money, executors often find they must sell estate property, take out a lien on property or use life insurance money to pay any applicable taxes.
Whether or not this will affect your estate of course, depends upon its value, but remember that many people are surprised to discover that their estate is worth quite a bit more than they had estimated. To prepare for the return of estate taxes, you should consult with a qualified estate planning attorney.