The federal estate tax does not affect everyone. Because the U.S. estate tax only applies if your estate is valued above a certain dollar amount, it does not currently impact modest estates. If the value of your estate is less than the applicable exclusion amount, it may pass to your heirs and beneficiaries without federal tax.The estate tax rate applied to your estate is the one in effect during the year of your death. Information on the federal estate tax exclusion amounts and estate tax rates for 2019 and 2018 is available on our estate taxes page.
The federal estate tax exemption amount has been fairly large in recent years. It increased dramatically in 2018 as the result of legislation passed at the end of 2017. Nevertheless, these estate tax advantages are subject to change. Unless substantial cuts are made in the federal budget, the government may need a massive revenue increase. It may need to increase estate taxes, as well as related types of taxes. If this happens, the estate tax exemption amount could be significantly reduced, in which case more estates will be subject to this transfer tax. Current exemption amounts may also change due to shifts in tax policy, future election results, and for other reasons as well.If your estate may be subject to the estate tax, take advantage of the current tax exemption amounts and develop a strategy. One technique used by many wealthy individuals and families is to establish an estate planning trust. To set up a trust, the first step is
finding an attorney. You can view an overview of different types of estate planning trusts on our
more about trusts page.
Estate Tax Calculator
If you want a rough estimate of the amount your heirs or beneficiaries will receive after federal estate taxes, you can enter some hypothetical figures in an online estate tax calculator. One of the best is the estate tax calculator available at Bankrate.com.This article on the U.S. estate tax was updated on April 9, 2019.
Why You Should Care About the Estate Tax
If your estate is subject to the estate tax, the amount paid in taxes will reduce the amount of
inheritance or bequest your heirs or beneficiaries receive. Instead, the money owed in taxes will be paid to the federal government and spent in its sole discretion. Perhaps you made many sacrifices throughout your life to accumulate what you have. Without proper planning, a substantial portion of your assets could be handed over to the government, in the form of taxes, when your estate is administered.An alternative is to engage in estate planning to reduce or minimize the estate tax owed. Through effective tax planning, you can increase the amount left for your surviving spouse or partner, your children or to care for your pets. If you prefer to leave part of your estate to charity or an educational institution, estate tax planning may allow you to leave a larger bequest. Regardless of how you want your property distributed,
estate planning allows you to exercise greater control over the outcome and possibly increase your legacy.
Will Your Estate be Subject to Estate Taxes?
As federal tax laws change, the percentage of estates subject to the estate tax fluctuates. For the 2018 and 2019 tax years, fewer estates may be subject to federal estate taxes due to the large exemption amounts. When evaluating whether your estate will be subject to estate tax, keep in mind that these exemptions amounts change frequently, so you should review your estate plan regularly.For specific figures on how many estates are typically subject to federal estate taxes, see the article Wealth Transfer Taxes: how many people pay the estate tax? by Jeffrey Rohaly and Katherine Lim. This article is available on the Tax Policy Center, Urban Institute and Brookings Institution website.Also, the federal estate tax is not the only estate tax you may need to consider. Some states also have a state estate tax. This is separate from the federal estate tax. Consult your tax professional about whether your estate could also be subject to estate tax at the state level.
Estate Tax Closing Letter
If you are an executor or trustee going through the process of settling a decedent's estate or trust, it is prudent to address the issue of estate taxes and other taxes that may be owed before making distributions to heirs and beneficiaries. If an estate tax return will be filed, discuss with your tax professional whether you also need to request an
Estate Tax Closing Letter.
Estate Tax Resources
For an overview of the U.S. estate tax and answers to frequently asked questions about estate taxes, such as what deductions are available to reduce estate taxes, see the IRS page on estate tax.
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