Federal Estate Taxes

Sometimes, federal estate tax is dismissed as a non-issue because people think they have to be rich before they are taxed. However, did you know that everything you own, possibly including your retirement plans and life insurance proceeds, is includible in your gross estate and that federal estate taxes begin on estates valued at $2,000,000 (for persons who die in 2007)?

Fortunately, there are a number of estate planning tools available that can be utilized to reduce, and possibly eliminate, the federal estate tax.

When calculating federal estate tax, a progressive estate and gift tax table is used to calculate the tax on the net taxable estate. The applicable credit amount (the federal estate tax on an estate equaling $2,000,000) is then subtracted from the calculated tax. The chart below illustrates the tax schedule starting at $2,000,000. The applicable credit amount or unified credit is $780,800 for 2007.

2007 Gift and Estate Tax Rates


If taxable
estate is...		 the base
tax is...		 plus minus unified credit
$2,000,000 and over $780,800 45% of excess over $2,000,000 $780,800

Please see examples below:

Dollar Value of Taxable Estate Tax Calculation
$2,000,000 $0 $780,800 + (.45 x $0) - $780,800 = $0
$2,500,000 $225,000 $780,800 + (.45 x $500,000) - $780,800 = $225,000
$3,000,000 $450,000 $780,800 + (.45 x $1,000,000) - $780,800 = $450,000

Ready to get started?

State Farm Life Insurance Company (Not Licensed in MA, NY, or WI)
Bloomington, IL
State Farm Life and Accident Assurance Company (Licensed in NY and WI)
Bloomington, IL

IL-28.6

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