Unified Credit Rises With Year 2000

CARLSBAD, CA - With the stroke of midnight on New Year's Day, the Unified Credit rose from $650,000 to $675,000.

The "Unified Credit" refers to the amount of one's estate that can pass tax-free to heirs.

Whether discussing estate transfers or outright gifts, the Unified Credit ensures that millions of families are able to pass assets to loved ones without estate taxes. Estate taxes are one of the most dreaded taxes, with rates that can climb as high as 55% in some cases.

History of the Credit

As part of the Taxpayer Relief Act of 1997, Congress and President Clinton agreed to gradually increase the Unified Credit over a period of 10 years. Prior to the passage of the law, the Unified Credit was stuck at $600,000 where it had languished for over a decade.

The Unified Credit has been slowly creeping up every year since 1997, and will hit $1 million by 2006. The new Unified Credit, which shelters $675,000 in assets, saves heirs an effective $220,550 in taxes.

The Unified Credit schedule looks like this:

Getting Credit You Deserve

Every individual is entitled to receive the Unified Credit. In theory, this means that a husband and wife could shelter $1.35 million combined in assets before being taxes. However, married couples that do not do effective estate planning may actually be entitled to only one Unified Credit, instead of two.

When one spouse passes away, the unlimited marital deduction automatically passes all assets of that spouse to the other, completely free of any tax. However, when the second spouse passes away, only one Unified Credit is applied, even though the estate is the combination of two individuals' estates.

This scenario often happens with couples that only draft a will, or do not complete any estate planning whatsoever.

There are some estate planning tools that help preserve both individual receive the Unified Credit. Strategies like living trusts are able to preserve the Unified Credit more effectively, and can help reduce the final tax burden on heirs.

Real-World Impact

With the Unified Credit increasing, how will you and your family be impacted? Surprisingly, very little.

The Unified Credit is only rising to keep up with inflation. This year's Unified Credit represents an increase of 3.8%. That's a very low growth rate, especially in this robust economy. With many estates growing at an annual rate of 10-20%, the Unified Credit may not be enough to completely shelter your estate from estate taxes.

Learn More About The New Unified Credit

To learn more about the new Unified Credit and how it could affect your own family, contact our estate experts. SaveWealth's team of estate specialists can help you put it all into perspective, and determine how you can take advantage of the new legislation. To speak with one of our estate tax professionals, please contact SaveWealth.com today!