Unified Transfer Tax Rate Schedule for Residents & Nonresidents

The estate and gift tax rules are complex and professional advice is recommended.

Unified Transfer Tax Rate Schedule for Residents & Nonresidents⁽¹⁾

Taxable Amount Over

Taxable Amount Not Over

Tax (before credits) on Amount in Col. A⁽²⁾

Tax Rate on Amount between Col. A & B

-
10,000
20,000
40,000
60,000
80,000
100,00
150,000
250,000
500,000
750,000
1,000,000
1,250,000
1,500,000
2,000,000

10,000
20,000
40,000
60,000
80,000
100,00
150,000
250,000
500,000
750,000
1,000,000
1,250,000
1,500,000
2,000,000
-----------

-
1,800
3,800
8,200
13,000
18,200
23,800
38,800
70,800
155,800
248,300
345,800
448,300
555,800
780,800

18
20
22
24
26
28
30
32
34
37
39
41
43
45
46

Notes

(1) The gift tax exemption is limited to $1 million.

(2) Definitions

Resident: (a) U.S. citizens and, (b) foreign nationals who meet the definition of resident. A resident is an individual who enters the U.S. with the intent to stay for indefinite period of time. Residence for U.S. gift and estate tax purposes is linked to one's domicile. The U.S. has negotiated gift and estate tax treaties with several countries. Such treaties may impact one's status as a resident.

Nonresident: A foreign national who is not defined as a resident.

Taxable Estate

Resident: residents are taxed on their "gross estate" or assets held worldwide, defined as "the value at the time of death of all property, real or personal, tangible or intangible, wherever situated (IRC Section 2031).

Nonresident: nonresidents are taxed on assets which are defined as property "situated in the United States" at the time of death (IRC Section 2103).

Special rules may apply for up to 10 years after a U.S. citizen or resident expatriates. (see IRC Sections 877, 2107 and 2501 and articles in other sections of KnowledgeNET).

Taxable Estate: Generally defined as the gross estate less deductions, as provided by the Internal Revenue Code (IRC Section 2051)

(3) Tax credits are available, as follows:

Exemption for Residents: Exemption and Tax Credit

Year New Exemption *

2001 $675,000

2002 $1 million

2003 $1 million

2004 $1.5 million

2005 $1.5 million

2006 $2 million

2007 $2 million

2008 $2 million

2009 $3.5 million

2010 0 (Taxes fully repealed)

2011 $1 million (old rules restored)

*Exemption levels for residents (U.S. citizens and U.S. domiciliaries). The estates of taxpayers in this category are taxed on worldwide assets. The exemption level for nonresidents remains at $60,000. In addition to the increased exemption amounts, the top rate which is currently at 46% will be reduced gradually to 45% in 2007. The estate tax rates will most likely be subject to ongoing changes in the coming years.

Individuals should review their trusts and wills to determine whether revisions need to be made. For example, bypass trusts often use the maximum exemption. This may no longer be your preferred choice as the exemption increases. Giving away assets now and paying gift tax now may no longer be a good strategy for some. In 2011, the tax is restored with an exemption of $1 million and a top rate of 60%. If the law does not change, then 2010 is the appropriate year to die since the tax is zero due to an unlimited exemption.

All code section references are from the Internal Revenue Code of 1986 as amended.