When you are looking into the subject of estate planning, you may hear about the federal estate tax and assume that you should be concerned. If you are exposed, you should be extremely concerned, because this death tax carries a 40 percent maximum rate.
Fortunately, most people are not exposed to the federal estate tax, because there is a credit or exclusion that is relatively high. The exclusion is the amount that you can transfer before the estate tax would be applicable. It is updated each year to account for inflation, but for the rest of 2015, the exact amount of the federal estate tax exclusion is $5.43 million.
If the value of your estate does not exceed this figure, your estate would not be subject to the federal estate tax. Any portion of your estate that exceeds the amount of the exclusion would potentially be subject to taxation when it is being transferred.
Marital Deduction
To fully understand the lay of the land, you should be aware of the marital deduction. You would be using your exclusion to transfer assets tax-free to anyone other than your spouse. Due to the existence of the marital deduction, you can transfer unlimited assets to your spouse free of taxation, assuming your spouse is an American citizen.
The unlimited marital deduction is not available to non-citizen spouses because a citizen of another country could return to his or her country of citizenship with a tax-free inheritance if this stipulation was not in place. As a result, the American Internal Revenue Service would never be able to collect any money.
State-Level Estate Taxes
If you are not exposed to the federal estate tax because the value of your estate does not exceed the amount of the exclusion, you may not be out of the woods. A number of states in the union impose state-level estate taxes, and the exclusions in these states are typically lower than the federal exclusion.
We practice law in the state of Indiana. We do not have an estate tax in our state, but you could be exposed to taxation if you own valuable property in a state that does have a state-level estate tax.
Special Report on the Death Tax
You should fully understand the tax laws when you are planning your estate, because there are steps that you can take to mitigate your exposure if your estate is subject to taxation. To obtain detailed information about the federal death tax, download our special report.
This report is being offered free of charge at the present time, and you can obtain access through this website. To get your copy of the report, visit this page and follow the simple instructions: Free Estate Tax Report.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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