Quiz | January 2011

Do You REALLY Know the Estate Tax?

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January 2011
By Kevin McCormally, Editorial Director, Kiplinger.com

Often derided as “the death tax,” the federal estate tax has been much in the news lately, usually surrounded by a debate peppered more with emotion than facts.

How much do you know about this final accounting with how Uncle Sam works? Read our related story, The 'Death Tax' Lives, and take our quiz by clicking below.

Quiz

Do You REALLY Know the Estate Tax?

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Question 1 of 7

Does the federal estate tax apply to the assets of Americans who died in 2010?

A. Yes
B. No
C. It's up to the estates of people who died.

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Quiz

Do You REALLY Know the Estate Tax?

AP Photo

Question 1 of 7

Does the federal estate tax apply to the assets of Americans who died in 2010?

You're right! C. It's up to the estates of people who died. is correct.

Sorry, wrong! is incorrect.

The right answer is C. It's up to the estates of people who died..

Taxpayer's choice: Estates of those who died in 2010 can choose to pay the tax ... or not. Although the tax was scheduled to expire December 31, 2009, in December, 2010, Congress retroactively reimposed the tax to cover all estates created by 2010 deaths -- such as Yankees owner George Steinbrenner. However, the lawmakers gave large estates an out: If the executor elects to waive the right to step-up the tax basis of an unlimited amount of assets to date-of-death value, the estate tax will not apply.

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Quiz

Do You REALLY Know the Estate Tax?

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Question 2 of 7

How much can you leave to your spouse estate-tax free in 2011?

A. $1 million
B. $3.5 million
C. $5 million
D. $10 million
E. Any amount; there is no limit.

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Quiz

Do You REALLY Know the Estate Tax?

istockphoto

Question 2 of 7

How much can you leave to your spouse estate-tax free in 2011?

You're right! E. Any amount; there is no limit. is correct.

Sorry, wrong! is incorrect.

The right answer is E. Any amount; there is no limit..

As under previous law, any amount can go to a widow or widower free of estate tax.

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Quiz

Do You REALLY Know the Estate Tax?

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Question 3 of 7

For heirs other than a husband or wife, how much can be passed on in 2011 before triggering the federal estate tax?

A. $1 million
B. $3.5 million
C. $5 million
D. $10 million

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Quiz

Do You REALLY Know the Estate Tax?

istockphoto

Question 3 of 7

For heirs other than a husband or wife, how much can be passed on in 2011 before triggering the federal estate tax?

You're right! C. $5 million is correct.

Sorry, wrong! is incorrect.

The right answer is C. $5 million.

The new law provides a credit that will wipe out the estate tax bill on up to $5 million of assets transferred to heirs in 2010 and 2011 (and the figure will be indexed for inflation for 2012), beyond the unlimited amount that can go to a spouse tax-free. If one spouse does not use his or her entire credit, the leftover amount can be used by the survivor, allowing a married couple to pass up to $10 million to heirs tax-free.

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Quiz

Do You REALLY Know the Estate Tax?

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Question 4 of 7

When a tax is owed, how is the amount figured?

A. It’s determined by applying a series of progressively higher rates ranging from 18% to 35%.
B. A flat rate of 35%.
C. A flat rate of 45%

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Quiz

Do You REALLY Know the Estate Tax?

istockphoto

Question 4 of 7

When a tax is owed, how is the amount figured?

You're right! B. A flat rate of 35%. is correct.

Sorry, wrong! is incorrect.

The right answer is B. A flat rate of 35%..

Although the federal estate tax rate schedule has rates ranging from 18% to 35%, estates that actually owe the tax pay at a flat 35% rate on amounts over $5 million. The tax is figured using the lower rates, too, but the credit that offsets the bill on the first $5 million of taxable assets applies first against the lower rates. By the time you hit the $5 million mark, you’re in the top bracket.

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Quiz

Do You REALLY Know the Estate Tax?

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Question 5 of 7

Approximately how many estates pay the tax each year?

A. 5,000
B. 15,000
C. 50,000
D. 100,000
E. 250,000

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Quiz

Do You REALLY Know the Estate Tax?

istockphoto

Question 5 of 7

Approximately how many estates pay the tax each year?

You're right! B. 15,000 is correct.

Sorry, wrong! is incorrect.

The right answer is B. 15,000.

In 2008, the latest year for which statistics are available, 14,713 estates were taxed, to be exact. Back then, just $2 million could go to heirs tax-free, so it’s likely that the number will drop significantly now that Congress has set a $5 million threshold before the tax is due.

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Quiz

Do You REALLY Know the Estate Tax?

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Question 6 of 7

About 2.5 million Americans die annually. What percentage of estates owe the tax each year?

A. 8%
B. 5%
C. 1%
D. 0.6%
E. Zero

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Quiz

Do You REALLY Know the Estate Tax?

istockphoto

Question 6 of 7

About 2.5 million Americans die annually. What percentage of estates owe the tax each year?

You're right! D. 0.6% is correct.

Sorry, wrong! is incorrect.

The right answer is D. 0.6%.

While about 2.5 million Americans die each year, the latest figures show that just 14,713 had taxable estates in 2008. That works out to 0.6%, or about one in every 160 estates.

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Quiz

Do You REALLY Know the Estate Tax?

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Question 7 of 7

Under current law, what will the estate tax be in 2013? (Hint: It's more than you might think.)

A. Up to $5 million tax free, with excess assets taxed at 35%.
B. Up to $3.5 million tax free, with excess assets taxed at 45%.
C. Up to $1 million tax free, with excess assets taxed as high as 55%.
D. There will be no federal estate tax; it is scheduled to expire after 2010.

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Quiz

Do You REALLY Know the Estate Tax?

istockphoto

Question 7 of 7

Under current law, what will the estate tax be in 2013? (Hint: It's more than you might think.)

You're right! C. Up to $1 million tax free, with excess assets taxed as high as 55%. is correct.

Sorry, wrong! is incorrect.

The right answer is C. Up to $1 million tax free, with excess assets taxed as high as 55%..

The latest tax law simply delays the end of the Bush tax cuts by two years. So, if Congress does nothing, come 2013 we'll revert to the rules in effect in 2000, with a $1 million exemption and a top rate of 55%.

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Quiz

Do You REALLY Know the Estate Tax?

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