Some of the most common misconceptions people have about estate planning involve estate taxes. How much will you have to pay? When will you have to pay it? Is there anything you can do to lessen the amount of taxes you’re facing?
Thinking about estate taxes as you go about the estate planning process is important, but it’s also not as big an issue as you may believe. While there are estate tax concerns that you and your attorney will talk about, you may not have to worry about the tax at all. Even if you do, there are ways to make sure this tax issue is as minimal as you can make it. Today we are going to look at estate taxes and why you may not need to worry about them if you create an estate plan in 2016.
Will You Need to Worry About Estate Taxes in 2016? What are Estate Taxes, and Who Pays Them?
Before we look at whether you might have to pay an estate tax, it’s important to understand some basics. What is an estate and why is it taxed? An estate is the property left behind by a deceased person, and an estate tax is a tax on the value of that property. Should you die leaving behind more assets than debts, your estate might have to pay an estate tax.
Notice that when we talk about estate taxes, we are talking about the estate itself paying the tax. After someone dies, someone else will have to begin managing the property left behind. That person, called an administrator, representative, trustee or executor, has several duties and responsibilities. One of these is to determine the total value of the estate for estate tax purposes, and then, if necessary, use estate funds to pay any taxes that are due.
This means that even if you stand to inherit property, you will never have to pay estate taxes yourself. Estate taxes are paid by the estate, not by inheritors.
Will You Need to Worry About Estate Taxes in 2016? Oklahoma, Kansas and Missouri
As of 2016, Oklahoma, Kansas and Missouri have no state-level estate taxes. While some other states have state-level estate taxes, people who live in these states usually don’t have to worry about state-level estate taxes.
However, if you have property, especially real estate, located in another state, you should talk to an estate planning attorney about whether there’s a state-level estate tax that might affect you.
Will You Need to Worry About Estate Taxes in 2016? Federal Estate Taxes
Even though Oklahoma, Kansas and Missouri are estate-tax free states, that doesn’t mean you don’t have to worry about estate tax issues, as the federal estate tax still applies regardless of where you live.
Fortunately, the federal estate tax issue is not a common planning concern because it is currently at a high enough level that it doesn’t apply to the majority of estates.
This is because each individual can exempt up to $5.45 million of estate value when determining estate tax liability. This means if you leave an estate worth less than $5.45 million, your estate won’t have to pay a single penny in estate taxes. Further, married couples can effectively combine their individual exemptions, meaning their estates won’t have to pay taxes unless they are worth an excess of $10.9 million. There is currently a proposal in Congress to reduce this exemption to $3.5 million and if it passes, a total of $7 million would be sheltered for a married couple.
Will You Need to Worry About Estate Taxes in 2016? Estate Tax Strategies
So, let’s say you have a large estate and believe it might have to pay estate taxes. What can you do about it?
Luckily, there is a wide range of tools, strategies, and options available for people who want to minimize potential estate tax. Some tools, such as gift-giving, are relatively simple to implement, while others are much more complicated.
To determine if you need an estate tax mitigation plan you’ll have to take into consideration a number of factors, such as your current net worth, your likely future net worth, the current estate tax limits, exemption limits, and more. All of this requires careful evaluation, and is not something you should do without our aid and assistance.
If you’d like to talk to us about estate taxes and what you can do about them, schedule an appointment to come talk to us as soon as possible.