You’ve spent a lifetime building financial security for your family. What will happen to all that you have worked for when you are gone? Do you know how much will be paid out in taxes to the federal and state governments by your loved ones? You need to know now how to best protect all that you have worked for. The tax specialists at Tax Crisis Institute are equipped and available to help you plan how to retain as much as possible for posterity.
The Estate Tax is a tax assessed against the property and assets that will be distributed to heirs upon the death of an individual. The estate tax is assessed only on the value of the estate which exceeds the threshold set by the federal government. A spouse is generally exempt from liability for the estate tax. However, when the estate, or a portion of the estate, is passed to another heir, the estate tax must be paid to the federal government.
If the value of the estate is less than $11.58 million, you are not required to file and you have no tax liability for the estate. If the estate exceeds $11.58 million, the estate tax is assessed only on the amount by which it exceeds the threshold. Those inheriting, however, may be required to pay an inheritance tax to the state on what they receive.
How Is The Estate Tax Amount Determined?
The net value of the estate is determined by computing the market value of real property, annuities, bank accounts, trusts, business interests, insurance, and other assets. From that is subtracted financial liabilities such as loans against properties, estate executor fees, qualifying charitable deductions, and funeral expenses. Also subtracted are assets that pass to a spouse.
The estate tax is assessed only on the amount by which the estate exceeds the threshold. The estate tax threshold for individuals in 2020 is set at $11.58 million. Under President Trump, the threshold was doubled from its previous amount and is assessed at a flat rate of 40%.
Who Pays the Estate Tax And When Is It Due?
The estate tax is assessed by the IRS and the executor of the estate is responsible for arranging payment of the tax. Payment of the tax is required within nine months of the death of an individual. In addition to the Estate Tax an Inheritance Tax is assessed by the state government in the states where it is collected. The inheritance tax is paid by the individual heirs of an estate.
If the value of the estate is less than the defined threshold, you are not required to file and you have no federal estate tax liability. However, the heirs will need to determine their state inheritance tax liability, if any. The settling of an estate can be complicated. The tax professionals at Tax Crisis Institute are qualified and available to guide you through the process.
What Is The Tax Rate On An Estate?
For the estates of individuals who passed away in 2020, the threshold for estate tax exemption is a net value of $11.58 million for individuals, and the estate tax rate is a flat 40%. Due to the election of Joe Biden, the threshold for tax exemption may soon be substantially lower and the tax rate may be significantly higher for estates that will be settled in the near future. President-Elect Joe Biden has promised to roll back the threshold to its previous amount of $3.5 million and to increase the tax cap to as much as 45%.
The Estate Tax payable to the federal government is only one of two taxes that comprise what is commonly known as the Death Taxes. The other is the Inheritance Tax which is paid by the heirs to those states requiring it upon receiving their inheritance.
Are There Ways To Reduce The Estate Tax Liability?
There are ways to reduce your estate tax. Planning ahead is the best way to reduce estate tax liability. Some of your options are listed here. A tax specialist can offer more information on retaining as much of your estate as possible for your heirs.
- Gifting is one way to reduce your estate tax. You can give up to $15,000 a year in gifts to individuals, $30,000 a year for couples. If you stay within the defined amount, you can give that much per person per year and the recipients have no tax liability for the gift.
- If your desire is to assist with medical bills or school tuition, pay the amount directly to the institution and it is not considered a gift to the individual.
- Charitable contributions are an excellent way to reduce your estate tax liability. The real value of the estate is reduced thereby reducing the tax liability. And the receiving charity has greater resources for accomplishing its mission. Essentially you have transferred what would have been paid to the IRS to an organization doing selfless work. Just confirm you are donating to a qualifying organization.
- There is the deceased spouse’s unused exemption (DSUE) which allows the inheriting spouse to use the exemption of the deceased spouse. See a tax specialist for more complete information on this.
- A Generation-Skipping Trust allows the estate to pass on to the second generation (grandchildren), or anyone related or unrelated who is at least 37 ½ years younger than the deceased. It is best to consult with a tax specialist in estate tax law regarding this option.
The estate tax law is said to be the most complicated in the tax code. It is best handled by a professional in that area of the tax law. If you have a large estate and are seeking to retain as much as possible to distribute to your heirs, consider seeking professional advice for planning purposes. It would be wise to confer with one of the tax specialists at Tax Crisis Institute.
Tax Crisis Institute has been a tax relief leader for over 30 years. When you work with the Tax Crisis Institute, we’ll make sure you don’t pay anything more than you owe!
Call Tax Crisis Institute today for a FREE consultation!