Navigating federal estate taxes

On Behalf of | Dec 28, 2017 | Estate Taxes |

Only a small minority of people are affected by federal estate tax. In fact, between December 2012 and March 2016, only .2 percent of Americans needed to pay federal taxes on their estate. However, state taxes are still applicable to many Americans today.

Federal estate tax only applies when the value of the property at the time of the grantor’s death exceeds $5.49 million. This means that for the vast majority of people, federal estate taxes will never be an issue.

What is federal estate tax for those affected?

For those whose estate exceeds the $5.49 million mark, there is a flat rate of 40 percent that must be paid on any amount above the threshold. This amount changes each year in accordance with inflation.

The $5.49 million tax exemption applies to individuals, therefore, married couples are entitled to twice this amount on their combined estate. This is because a spouse can automatically attain their deceased partner’s estate upon their death.

Dealing with a taxable estate

If an estate is taxable, then a tax form should be filed with the Internal Revenue Service (IRS) in the nine months following the death of the descendant. If the estate value is less than the $5.49 million mark after his or her death but his or her spouse’s estate is more, then the surviving spouse may be eligible for portability, allowing him or her to take advantage of the combined estate value, and therefore, being subject to less tax in the event of his or her death.

Federal taxes have a huge effect on the end value of multi-million dollar estates; therefore, understanding how the law applies is vital.

Source: Time, “4 Things You Probably Don’t Understand About Estate Taxes,” accessed Dec. 28, 2017


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