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10 Death Tax Myths

        Money | Taxes

1
I should simply spend all of my estate rather than giving it to my heirs, since the death tax will take it all
There's no need to spend every bit of your estate -- leave what you can for the next generation!
There's no need to spend every bit of your estate -- leave what you can for the next generation!
Goodshoot/Thinkstock

This is a self-defeating myth for two reasons.

First, the 2010 Tax Act limited the maximum estate tax, which is imposed on the largest estates, to 35 percent. That can be a sizeable amount of wealth to pay to the government, but it's far less than the 55 percent maximum that the new tax law prevented [source: Herpe].

Second, the entirety of a granter's estate doesn't necessarily have to be taxed through the estate tax. If the estate is small enough (equal to or less than $5 million per taxpayer in 2011), it receives an exemption from the IRS. This allows many taxpayers to avoid the estate tax. Furthermore, gifts to charitable organizations, retirement accounts left to spouses and wealth transferred to family as a gift all fall under individual nuances of the tax code. They may be taxed differently and at different times. By planning the divestment of your estate to include these items, you may be able to reduce significantly the burden on your heirs [source: Mayerhoff].

For more information on the death tax and related taxes, check out the links on the next page.