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FREQUENTLY ASKED QUESTIONS continued...


Question: WHAT IS ESTATE TAX?

Estate or Death taxes fall into two categories: federal estate tax and estate taxes imposed by states.  The Federal Estate tax is calculated based upon the net estate.  Put simply, the net estate is made up of all assets you own or control minus certain deductions.  The Federal Estate tax currently applies to estates with net assets of $5,250,000 or greater. 


Outside of Federal Estate Tax considerations, one must still account for the possibility of a state imposed inheritance or estate tax.  Additionally, it is good practice to review your plan regularly with your estate planning attorney and tax professional because of the appreciation of your estate and changes to the tax laws.



Question: WHAT IS THE UNLIMITED MARITAL DEDUCTION?

An individual, in a federally recognized marriage is permitted to give an unlimited amount of assets to his or her spouse without incurring any federal gift or estate taxes.  The unlimited marital deduction is only available to surviving spouses who are United States citizens.



Question: WHAT IS A QUALIFIED PERSONAL RESIDENCE TRUST (QPRT)?

A Qualified Personal Residence Trust (QPRT) allows an individual to give away their primary residence or vacation home away at a significant discount, freeze its value for estate tax purposes, while continuing to reside in the home.  In a nutshell heres how it works: Transfer title of the home to the QPRT, reserving the right to live in the house for a specified number of years.  If you survive to the end of the specified period, the house (including any appreciation since the transfer) pass to your heirs or other beneficiaries free of any additional estate or gift taxes.  At the end of this specified period, if you continue to live in the house, in order to avoid inclusion of the house in your taxable estate you must pay market rent to the QPRT Trust beneficiaries.  The rental income would carry income tax consequences for the beneficiaries.  Should you die before the expiration of the specified period the full value of the house is included in your estate for estate tax purposes.  Additionally, the QPRT also serves to add a layer of protection for creditor purposes because once the trust is established you technically no longer own the property. 





The Law Office of Will M. Smith assists clients with estate planning, wills, trusts, estate administration, trust administration, probate, and probate litigation needs throughout the greater North County San Diego area including San Diego County, Riverside County, and Orange County.  Will Smith assists clients in the cities of Escondido, Valley Center, San Marcos, Rancho Bernardo, and Poway. Other cities include Vista, Fallbrook, Bonsall, Temecula, and Murrieta.