In this post we will look at the tax implications that may come into play when you are planning your estate as a married person.
Income Tax
In general, an inheritance is not going to be subject to income tax. It is possible that the estate’s gains could be taxable, but this is something to discuss with your estate planning attorney.
Because of this, you don’t have to worry about income taxes when you are leaving an inheritance to your spouse (or to anyone else for that matter).
Estate Tax
Depending on the value of your estate, the estate tax may be a factor. The estate tax credit or exclusion is going to be $5.34 million in 2014. Throughout 2013 the amount of the estate tax exclusion has been $5.25 million.
If your estate exceeds the exclusion amount, the estate tax would potentially be applicable on the portion that you are transferring that is in excess of the exclusion or credit.
If you are transferring less than $5.34 million in total (in 2014), the estate tax is simply not a factor regardless of the relationship that you have to the recipients.
If your assets do exceed the amount of the exclusion, you can take advantage of the unlimited marital deduction to give a tax-free bequest to your spouse. There is no estate tax imposed when you are leaving assets to your spouse.
The unlimited marital deduction is only available if your spouse is an American citizen.
The Next Step
You do not want to ignore estate planning because you intend to leave everything to your spouse in a tax-free manner using the unlimited marital deduction. The reason why the powers that be don’t mind this arrangement is because of the fact that the estate tax will eventually be applicable when your spouse dies assuming he or she does not remarry.
It may be possible to use this exclusion in beneficial ways when you are planning your estate, but estate planning is still necessary.
Wealth Preservation Strategies
The federal estate tax carries a maximum rate of 40 percent. When you have been able to accumulate significant wealth, you absolutely must take steps to mitigate your estate tax exposure.
There are various different courses of action that can be taken. The best strategy will vary depending on the circumstances in question.
If you would like to discuss estate tax efficiency strategies with a licensed estate planning attorney, simply contact our firm to schedule a free consultation.
We will listen as you explain your objectives, gain an understanding of your financial situation, and provide you with informed recommendations.
Our firm has helped many high net worth families in the Oklahoma City area, and we would be glad to assist you.
Blaine Peterson
Author, Attorney
Parman & Easterday
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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