How much will my family pay in estate taxes?
The answer to this question all depends on the extent of your resources as they compare to the amount of the federal estate tax credit or exclusion. At the time of this writing, the exclusion is over $11 million, and there are annual adjustments to account for inflation. If the value of your estate does not exceed this amount, there would be no federal estate tax exposure.
What is the estate tax rate?
The federal estate tax rate is a whopping 40%, so it can have a very significant impact on your legacy if your estate is in taxable territory.
Is the estate tax applicable on transfers to all relatives?
The answer is yes, with one exception. If you are married, you can use the unlimited marital deduction to transfer assets to your spouse tax-free and vice versa. One caveat would be that the parties involved must be citizens of the United States.
You can just give gifts to avoid the estate tax, right?
This used to be possible right after the estate tax was originally put into place in 1916, but we have had a federal gift tax since 1932 that closes the loophole. The estate tax and the gift tax are unified, so the exclusion applies to lifetime gifts along with the estate that will be transferred after your death.
Why don’t we hear from the IRS when we give birthday and holiday gifts?
In addition to the unified gift and estate tax exclusion, there is also an annual gift tax exclusion. This allows you to transfer up to $15,000 to any number of people within a calendar year without utilizing any of your unified exclusion.
You can pay school tuition for students tax-free, and there is a health care exemption that allows you to pay medical bills for others in a tax-free manner. This would include health care insurance premiums.
Are there estate taxes on the state level as well as the federal level?
Yes, there are, but we are fortunate here in Nevada because we do not have an estate tax in our state. However, if you own valuable property in a state that has an estate tax, it could be a factor for you.
If you have a farm or a ranch that you are going to pass along to your family, is the estate tax an obstacle?
Everything that you own, including real property such as a farm or a ranch, is looked upon as part of your estate by the Internal Revenue Service. People are sometimes forced to sell large tracts of land that have been in families for generations just to pay the estate tax.
Is there anything that you can do to mitigate your exposure?
There are estate tax efficiency strategies that can be implemented to keep a maximum store of assets in the family. The ideal way to proceed will depend upon the circumstances, because each case is different, and there are many tools in the estate planning toolkit.
The above being stated, in a general sense, irrevocable trusts can provide a solution in many cases. Generation-skipping trusts, grantor retained annuity trusts, charitable lead trusts, and qualified personal residence trusts are some of the devices that can be used to lessen the death tax burden.
We Are Here to Help!
Our attorneys are ready, willing, and able to provide assistance if you have estate tax concerns. We can gain an understanding of the nature of your assets, your family dynamic, and your legacy goals make the appropriate recommendations.
If you are ready to set up a consultation, we can be reached by phone at 775-823-9455. We also have a contact form on this website that you can use if you would prefer to send us a message.