Unlike other countries, the United States is notorious for taxation. Taxes are used for everything. Sometimes, you can catch a break with an exemption and sometimes you have no choice but to pay them. We deal with all kinds of taxation during our lifetimes, but what about after death? “There’s nothing certain in life besides death and taxes” but even in death we can still be taxed. This taxation is called a Federal Estate Tax. Although, it sounds extremely crazy, it can actually be beneficial. Understanding the truth about the Federal Estate Tax can be difficult but here are 5 important facts you should know about Federal Estate Tax.
- The Federal Estate Tax is a taxation on your rights to transfer property after death.
- To calculate the tax, all assets that you own or those you have a stake in after death must be accredited by an accounting professional. A fair market value will be made on these assets to calculate their rate. To calculate the Fair Market Value, experts will deem how valuable they perceive the asset to be according to its current value. This total calculation is called the “Gross Estate”. The government will provide for deductions – mortgages, estate administration expenses, the passing over of property, qualified charities, etc called “The Exemption”. “The Exemption” will be taken out of the “Gross Estate” calculation to create an amount called your “Taxable Estate” or “Net Estate”. The Taxable Estate is then added to the number of lifetime taxable gifts creating your tax amount. The tax amount is later reduced by the available unified credit
- Every citizen of the United States is subject to Federal Estate Tax but not every citizen needs to pay it. If the “Gross Estate” is more than “The Exemption” (greater than ~$11 million [2018]) during the year of the deceased’s death, then the estate must file a Federal Tax Return form called a Form 706 Tax Return. The Form 706 must be filed within the first nine months of the deceased’s death. If the “Gross Estate” is less than the Exemptions, then the estate will be passed on heirs and beneficiaries for free.
- From the beginning of January 2011, the government made permanent the “portability of estate tax exemptions” to the living spouse of the deceased. This means that in the event of death, the deceased spouse’s estate tax must be used. If anything is left remaining, it will be passed on the surviving spouse who can combine it with their own exemption in the event of their death. By combining both exemptions, after the death of the surviving spouse, the heirs will save money due to the estate tax exemption being larger than the value of their “Taxable Estate”.
- Most relatively simple estates like cash, publicly traded securities, small amounts of easily valued assets or jointly held properties do not require a tax return to be filed.
Calculating and understanding your estate tax can be incredibly difficult process. Hiring an Estate Tax Attorney will provide you with an individual equipped in bundling your assets appropriately to avoid the taxation on your assets, but also someone to lean on in the event of your spouse’s passing. An Estate Tax attorney can provide you with the security in your assets; that they are maintained and your beneficiaries will continue to be in control after your passing.