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Estate tax
If you don't know what an estate tax is, you might know it by another name: death tax. And this tax is exactly what it sounds like. It is a tax on your estate upon your death. There's not much you can do to get around it if you meet the criteria to be taxed, but usually death taxes are reserved for only the richest. In the United States, assets which are left to your spouse or a registered charity are not included in the death tax. However, don't think you can beat the system by leaving everything to your spouse and having them distribute it; this doesn't only have legal complications, but your assets will only end up getting taxed more! Some jurisdictions are making moves to make these taxes more progressive. Kentucky stands out, in that the closer related you are to the person the less they are taxed. In Canada things are a bit different. Excluding assets left to a spouse (or common-law partner), the assets are treated as if they are being sold to the beneficiaries. This commonly leads to a capital gains tax instead of the tax. In the US, some states treat death taxes differently than the federal government (but some treat it the same). If you meet the exemption requirements of one level of government, you might not meet it for the other. So who is taxed and who isn't? In the United States, if your estate is worth less than $3.5million dollars your estate will not be subject to the estate tax. However, any gifts you have given away during your life count against this $3.5million credit. So if you gave away your $1million home to your child, you would only have $2.5million dollars left on credit. In Canada, everyone is subject to the capital gains tax. Luckily, taxed owned is paid by the estate, not by the beneficaries. However, leaving aside liquid money to pay for the capital gains tax is an important part of estate planning. If there is no liquid cash available, assets may have to be sold off to simply pay the taxes. In the UK, only 6% of estates are actually taxed in an estate tax. If your estate is worth more than £325,000 (as of 2009) then it qualifies for the estate tax, otherwise you're home clear. So, while estate taxes can be major, resulting in tens or hundreds of thousands of dollars to be paid, these duties are reserved for only the wealthiest of individuals. Chances are if you do qualify for this taxation, you can also afford the sound advice of a professional financial planner, lawyer, and accountant to help you manage your estate well. A lot of people get worried about these taxes, but they only apply to a select few people (in most jurisdictions at least). If you're still worried, find the laws governing death taxes in your jurisdiction.
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