The estate tax can result in a significant amount of your money or your property being paid to the government upon your death. In general, you have already been taxed on this money when you earned it. However, if your estate is large enough, taxes will need to be paid again upon your death. Unfortunately, many people with family farms or with family businesses find that the estate that is left behind does not have enough liquid cash to pay the tax. The need to pay the tax bill ends up forcing heirs to sell off land or even sell the family business. Because of the large financial consequences of the estate tax, it is important to determine if your estate will be exposed to it.
An experienced Montpelier estate planning lawyer can help you to determine if the estate tax will be assessed on your estate. Unsworth Law can provide you with assistance in determining if you must pay estate taxes and can also help you to develop a comprehensive plan so you can lower your tax liability or avoid taxation altogether. Contact us today to learn more about how we can help you to reduce your tax burden.
Who Has to Pay Estate Tax?
The Internal Revenue Service explains that the estate tax is: “a tax on your right to transfer property at your death.” The estate tax can be up to 40 percent, depending upon the total value of the estate which you are leaving behind. This tax can be assessed on your estate if property is left to anyone other than your spouse. Spouses are able to transfer property to each other estate tax free upon death.
Not every estate is subject to estate taxes. There is a threshold value that your estate must reach before taxes are assessed. This value changes periodically based on inflation and other factors. As of 2016, the IRS rules stipulate that estate taxes are assessed once an estate has a value of at least $5,450,000. If there is a married couple, each spouse is entitled to pass $5.45 million worth of assets on.
If one spouse transfers assets to the other and doesn’t end up taking advantage of the option to transfer this $5.45 million of assets tax free, then the other can pass $10,800,000 in assets tax free because an unused tax exemption is transferrable.
To determine if estate taxes are assessed or not, first there must be a complete accounting of everything that the deceased owned as of the date of death, as well as everything the deceased had certain ownership interests in. This can include real property, real estate, cash, securities, trusts, insurance, business assets, insurance, and any other assets the deceased owned.
Once there is a list of everything the deceased owned, the fair market value of these items is determined. The cost actually paid and the value of the items when acquired is not relevant. An appraiser may be necessary to determine the fair market value of all items on the estate.
When the fair market value of all estate items is determined, this value is considered the Gross Estate value. Certain deductions are allowed to be subtracted from the Gross Estate value, such as mortgage debts; property passing to qualified spouses; expenses of estate administration; and qualified charities. If operating business interests or farms are a part of the estate, there are limited cases where the value of these assets can also be reduced.
The number reached when the deductions and reductions in value are subtracted from the Gross Estate value is the number that is used to compute the net value of the estate. Finally, if you’ve given any taxable gifts over your lifetime, the value of the taxable gifts is added on. This gives you the taxable value of the estate. If it exceeds the threshold amount, then the tax is then computed and assessed.
How a Montpelier Estate Tax Attorney Can Help Avoid Taxation
There are a variety of estate planning steps you can take to try to reduce the estate taxes that will be assessed. In some cases, through strategic planning, it is even possible to avoid taxes altogether. An experienced Montpelier estate tax attorney can provide assistance with this process.
To learn more about your options for avoiding estate taxes, join us for a free seminar or contact us to get personalized advice that is tailored to your situation. You can give us a call at (802) 879-7133 or contact us online today so we can get started on protecting your estate.
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