April 2016 – Tax season is here, which means taxes are on everyone’s mind. But when it comes to your estate, how much do you know about paying taxes? Let’s take a look at some of the basics of estate planning taxes.
What Are Estate Planning Taxes?
Estate taxes differ from probate expenses, which you may avoid with a revocable living trust. They are also different from final income taxes, which should be paid on income received in the year of your death.
Federal estate taxes, which historically hit the pricey 45%-55% range, have to be paid in cash within nine months of your death. However, since there aren’t many estates that have that kind of cash, it’s often necessary to liquidate assets in order to pay.
The good news is that if you plan ahead, it’s possible to reduce or even eliminate estate taxes.
Who Should Pay Estate Planning Taxes?
If the net value of your estate at the time of your death exceeds the exempt amount set by Congress at that time, your estate is subject to federal estate taxes.
In 2011 and 2012, the federal exemption was $5 million (adjusted for inflation in 2012) and the tax rate was 35%. In 2013, the exemption changed to $1 million with a top tax rate of 55%. As of now, the exemption is back at $5 million. As you can see, these numbers can change often, so the answer to the question of who must pay estate planning taxes varies year by year.
Additionally, some states have their own inheritance or death tax. This means your estate could be exempt from federal tax, but still have to pay state tax.
How Can I Calculate the Net Value of My Estate?
Your estate’s current net value is the sum of your assets minus your debts. Things to include would be your home, bank accounts, investments, business interests, personal property, retirement plans, and death benefits from your life insurance.
Have Questions? Bradford & Holliman Can Help!
Estate planning taxes have changed a lot in the past few years — and they could always change again. That’s why it’s a good idea to have an estate planning tax professional by your side. With help from Bradford & Holliman, you could lawfully avoid some or all of your estate planning taxes. Contact us today to find out more!