The federal estate tax looms large for high net worth families. This death tax carries a top rate of 40 percent, so we are talking about a significant piece of your legacy.
The good news is that most people are not exposed to the federal estate tax, because the exclusion or credit is relatively high. The exclusion is the amount that you can transfer free of taxation. There is an unlimited marital deduction that allows you to transfer any amount of money and/or property to your spouse free of taxation, but transfers to others are potentially taxable.
Now that a new year has arrived, the federal estate tax exclusion stands at $5.45 million. Last year, it was $5.43 million. There are annual adjustments to account for inflation.
The federal estate tax is not the only tax to be concerned about. There are a number of states in the union that impose state-level estate taxes. Fortunately, here in Texas where we practice, there is no state-level estate tax.
At the same time, if you own property in a state that has an estate tax on the state level, you could face exposure.
Changes Are Possible
You may not have any concerns if the value of your estate does not exceed the amount of the federal estate tax exclusion. However, you should be aware of the fact that tax laws can and do change.
To provide some history, a $5 million exclusion was put into place for the 2011 calendar year. After the enactment of the American Taxpayer Relief Act of 2012, the $5 million inflation-adjusted figure was made “permanent.”
This arrangement is supposedly permanent because there are no future changes written into the laws that exist at this time. However, the estate tax parameters can be changed via legislative mandate.
As a case in point, the White House has proposed changes to the estate tax parameters that would go into effect in 2018. Under these proposals, the estate tax exclusion amount would be reduced to $3.5 million, and the maximum rate would go up to 45 percent.
You should always be aware of the current state of affairs with regard to the estate tax parameters, because there are tax efficiency strategies that can be implemented if you are suddenly faced with exposure. If you do not act, a significant amount of money could be lost.
Learn More About Death Taxes
You should proceed in a fully informed manner if you have accumulated a significant store of wealth. Our firm has prepared an in-depth special report on this tax and the strategies that can be implemented to ease the burden.
To get your copy of the report, which is being offered free of charge, click this link and follow the simple instructions: Free Report on the Federal Estate Tax.