The good news is that most individuals do not die with a taxable estate, and therefore do not owe estate taxes to the federal government when they pass away.
The federal estate tax is a tax paid on the value of a decedent’s estate at the time of the decedent’s death. The taxable estate includes a decedent’s real estate, cash, securities, business interests, trusts, annuities, insurance benefits and other property rights.
For the year 2016, the first $5,450,000 of assets is exempt, and thereby escapes estate tax entirely. However, everything above that exemption amount is taxed at 40% or higher. This means that 40 cents or more of every dollar above $5,450,000 is paid to the federal government.
The tax burden is heavy for those wealthy enough to be subject to estate taxes. Fortunately, there are a number of techniques available which can effectively reduce or postpone the tax, so that greater wealth can pass to the beneficiaries.
One technique to reduce your estate tax liability is to make gifts during your lifetime. Every year, every person may make a gift to any other person of any amount up to the annual exclusion amount, which is $14,000 for 2016. The amount given is neither taxable to the person making the gift nor the person receiving the gift. A married couple can combine their annual exclusions to gift twice as much ($28,000) to any individual, which is a good way to transfer wealth to children and grandchildren.
Many states also collect their own estate taxes. Fortunately, the State of Florida stopped collecting estate taxes after 2005.
It is a good idea to meet with an estate planning attorney from time to time to review your planning. If you are an individual who may leave a heavy tax burden for your family, then you should DEFINITELY meet with a qualified attorney to discuss how you can best prepare for your future and for your family’s future.