Ask a CPA

Every estate gets a Federal Unified Tax Credit for the amount of tax that would be levied. In year 2013 the Federal Unified Tax Credit is $2,045,800 yielding a exclusion amount of $5,250,000 Million.
That is the limit that you can leave your heirs free of federal estate taxes. It is also known as the exemption equivalent amount.
The unified tax credit is cumulative. It includes the taxes due on taxable gifts that you have made over the course of your life (taxes on these gifts are usually not due until you die). Non-taxable gifts of up to $14,000 per person, per year are not counted against the federal unified tax credit.

The first $14,000 ($13,000 in 2012) are tax free. The taxes start at 18% and increase to 35%.
The person who makes the gift known as the donor is responsible for paying taxes on the gift on excess of the current years allowance.
If the donor does not pay the tax, the recipient must. If the recipient cannot or does not pay the tax, the IRS can seize the property and sell it to pay the tax.
Gifts are taxed at the same rate as estates.

Estate taxes are taxes based on the value of the estate you leave when you die. Estates valued at more than $5 million are subject to the federal estate tax. Some states use lower limits and other states charge no estate taxes at all. Any estate taxes that are due are usually paid for by the estate itself. This is different from inheritance taxes. They are state taxes that your heirs may be required to pay on the property they inherit.

An estate plan is a premeditated, systematic process of planning for the accumulation, conservation, and distribution of an estate using the most efficient and effective methods for accomplishing the goals of the owner. Tax considerations are usually a significant part of the effort. At the death of the owner, the estate plan insures the distribution of the estate with minimum administration costs and taxes, according to the wishes of the owner. Minimizing the cost of distributing an estate can only be accomplished by anticipating expenses and planning ways to avoid them before death occurs. Speak to your local CPA about the strategies to accomplish your plan.

Estate taxes can take a big bite out of what you would like to leave your heirs. Federal Estate taxes apply only to estates larger than $5,250,000 for the years 2013.
There are several strategies you can pursue to reduce or eliminate the tax bite. Speak to your local CPA or attorney about these strategies.
They may mention to you to consider making gifts. You can give up to $14,000 a year to as many people as you like, tax free. Together with your spouse, you can give up to $28,000 to each person. Also consider giving your life insurance policy to your wife, your child or put it in an irrevocable trust provided the assignment takes place more than 3 years before death. To keep the policy out of your estate, you cannot continue to pay the premiums.
The new owner has to pay them. Another strategy is to get married. No estate tax is levied on property given to a spouse. Of course, whatever is left (over $5,250,000) will be taxed in your spouse's estate when he or she dies.

The first step in determining the value of your estate is to add up the value of everything you own and then subtract it from the estate value, the expenses of settling the estate and making any non-taxable bequests. No federal estate taxes are assessed on estates valued at less than $5 million.
Included in your estate is your home and any rental property you may own, securities and other investments, retirement funds (401k, IRA's)you have saved and all your personal possessions.
Pending federal and state income tax refunds are also included. Many such items will automatically pass to your spouse and not be included in your estate if the property is jointly owned.
In addition, the size of your estate will be reduced by the money you owe, such as a mortgage on your home, burial expenses, the cost of settling the estate and other items.
Assets left to charity will also reduce the size of your estate.

The task of valuing your estate will be left to the executor of your will.
If you formed a living trust, the duties will be performed by the trustee. The executor or trustee might have to call in certain appraiser professionals for help.
A real estate broker or appraiser might be used to value your home.
The Internal Revenue Service requires that all estates be valued at the time of a taxpayer's death in order to determine whether any estate taxes are due.

The IRS expects estate taxes to be paid within nine months after the date of decedent's death unless one exception applies.
The exception involves a decedent who owned a business that accounted for more than 35% of the total estate. In that instance, a formula established by the IRS may allow estate taxes to be paid over several years. Speak to your local CPA about filing Form 706.

An estate is a separate entity from the deceased and from the executor who carries out the will. The estate must have a separate federal identification number. The estate will be assigned its own federal ID number after the executor completes IRS Form SS-4.

Starting in 2013, a taxpayer can leave a small business worth up to $675,000 to his or her heirs without triggering any federal estate taxes. For tax purposes, the IRS defines a family-owned business as any trade or business that is held at least 50% by one family, 75% by two families or 90% by three families. However, the decedent's family must have at least a 30% ownership stake. To qualify for the $675,000 threshold, the aggregate value of the decedent's family-owned business interests that are passed to heirs must exceed 50 percent of the adjusted gross estate. This requirement is called the 50 percent liquidity test. To find out if you are eligible, speak to your local CPA or attorney.