Estate (Taxes Imposed upon Decedent’s Estate)

Tax Rates Are Based on Valuation of Estate

You should periodically review the value of your estate with a Certified Public Account (CPA).

The Internal Revenue Service values your estate by adding together the value of all of your assets (i.e., residence and other real estate, cash accounts, investment accounts, business interests, personal property, such as jewelry, art, vehicles and boats, retirement accounts, life insurance) and subtracting the value of your liabilities (i.e., mortgages and other debt).
The estate tax rate is 40%.

Exclusion from Tax

Each person who dies receives an individual exclusion from estate tax.
The exclusion amount is $5 million (indexed for inflation). Each dollar that exceeds this exclusion is taxed at a rate of 40%.

How Trusts Preserve the Estate Tax Exemption

  • When the first spouse passes and leaves their entire estate to the surviving spouse, the federal government does not tax the estate due to the “unlimited marital deduction.” However, if the first spouses exemption is not properly preserved, when the second spouse passes the entire estate is subject to the estate tax and the surviving spouse is limited to their individual exclusion amount, which is $5 million (indexed for inflation).
  • By creating a living trust with specific provisions to protect against the estate tax, married couples can preserve the estate tax exemption of the first-to-die and can go so far as to effectively double the estate tax exemption. Therefore, with a living trust, married couples can currently increase their federal estate tax exemption to $10 million (indexed for inflation).
  • Other Benefits of Trusts
    • a) Immediate transfer of administration of assets to Successor Trustee
    • b) Broad powers to act as authorized by the trust
    • c) Ability to put restrictions on gifts (i.e., age of beneficiary before outright distribution is made, amount of gifts to beneficiaries, etc.)

Also see: Advanced Tax Planning Strategies for Large Estates