Tax myth: The 'death tax' will get you in the end

By Eileen AJ Connelly AP Personal Finance Writer MYTH: Without careful planning before you die, your heirs will have to fork over a big part of their inheritance to cover the "death tax." REALITY: There are plenty of reasons to put time into an estate plan, but for the vast majority of Americans, estate taxes should not be a worry. Internal Revenue Service statistics show just 14,700 estates owed taxes in 2009, the most recent year for which figures are available. And the tax agreement reached by Congress and the president at the end of 2010 made sure that number will be even lower in coming years, because only estates valued at $5 million or more will be subject to the levy. In 2009, that was 4,296 estates. "It's a tiny, tiny fraction," said Richard A. Behrendt, senior estate planner at investment advisory firm Robert W. Baird & Co. Many states collect either estate tax, which is paid by the estate, or inheritance tax, which is paid by the heir. Almost all exempt at least the first million or two of the estate's value, and are therefore also unlikely to affect many who are not in the highest income brackets. While taxes are one issue addressed in estate planning, the process isn't about avoiding taxes, said Alfred Peguero, a tax partner with PricewaterhouseCoopers in San Francisco. There's a host of family issues around who will inherit whatever money and property remains, guardianship for children and other matters that should be addressed to make the distribution of the estate as smooth as possible. It all starts with a simple will. It's estimated only one-third of the country has one. You need to have all the necessary documents in place as a responsible adult, Peguero said. Published: Tue, Apr 12, 2011