The federal estate tax can be a factor for you if you are in possession of a considerable store of property. This tax carries a top rate of 40 percent, so the damage can be quite noticeable if your estate is subject to the tax.
If you are married, you do not have to worry about an estate tax on an inheritance that you leave to your spouse. There is an unlimited marital estate tax deduction in the United States. This allows you to transfer unlimited assets to your spouse free of the death tax.
There is a caveat to the above statement. The federal estate tax marital deduction is only available to American citizens. This stipulation exists because the IRS wants to be able to get some money eventually.
A non-citizen could return to his or her country of citizenship with a tax-free inheritance if the marital deduction was available to foreign citizens, and the United States Internal Revenue Service would be left out in the cold.
There are 14 states in the union that have state-level estate taxes, and there is also a death tax in the District of Columbia. We practice law in the state of Vermont, there is a state-level estate tax in our state. The exclusion is just $2.75 million, so you could face state-level estate tax exposure even if you are exempt on the federal level.
On the state level, there is also a marital deduction, so you can transfer any amount of property to your spouse free of the Vermont estate tax, as long as the citizenship requirement is met.
Planning Is Still Necessary
Though you can transfer unlimited assets to your citizen spouse tax-free, what happens next? If you leave your spouse a large tax-free inheritance, estate taxes would still be looming after the death of your surviving spouse.
Leaving everything to your spouse tax-free is really not a long-term estate tax efficiency solution. There are things that you can do to ease the burden if you take the right steps, and you should explore your options and plan your estate in a fully informed manner.
Download Our Special Report
The stakes are high when you consider the potential impact of a 40 percent federal death tax, and the Vermont estate tax can take a heavy toll as well with its 16 percent rate.
Education is key if you want to protect the wealth that you have been able to accumulate. Our firm has prepared an in-depth special report on estate taxes and the strategies that can be implemented to preserve your wealth. This report will provide you with some eye-opening information, and it is being offered free of charge at the present time.
To obtain your copy of the report, click this link: Free Estate Tax Report.