What is an Estate Tax?

Estate taxes can be complex and difficult to understand, especially since the law is frequently changing in this area. If you have estate tax planning concerns, you should seek the advice and guidance of a knowledgeable estate planning attorney. Below are a few pointers for a general understanding of estate taxes.

The estate tax is a federal tax on transfers that is imposed on the estate of a deceased person. Nine months after an individual dies, the estate tax return and the payment of taxes, if any, is due.

The good news is that the majority of estates do not owe taxes because of the various exemptions that are available for each decedent. The amount of the applicable exemption changes fairly frequently, so it is important to be aware of the current amount allowed. In 2002 and 2003, the exemption amount was $1 million. It was increased to $1.5 million in 2004 and 2005, $2 million in 2006 through 2008, then up to $3.5 million in 2009. There was no estate tax at all for individuals who died in 2010. In 2011, the exemption was raised to $5 million per person in 2011, it was $5,120,000 per person in 2012, and in 2013 it was $5,250,000. In 2014, it was $5,340,000 and the 2015 estate-tax exemption is $5.43 million per individual. This means that if your estate does not exceed the exempt amount, now $5.43 Million, your estate will not pay an estate tax!

In order to get an estimate of how much estate tax will be due, you should add up all of the property in the estate that is subject to an estate tax. Essentially, this is everything you own or control, including pension plan assets, IRA’s, 401(k)’s, and life insurance you have control of. From this total, you subtract all of the applicable exemptions and deductions (this isn’t intuitive, so if your total assets add up to $5.43 Million or more, you need to see counsel to review this with you). If the end result is more than zero, there may be some estate tax due.

A qualified estate planning attorney should be able to advise you about this and help you understand whether you are subject to the estate tax or not. Surprisingly, there are attorneys that claim to be estate planners who do not understand the estate tax. Ask those specific questions to the attorney you are working with. If he or she is the least bit unclear about this area of law, they are not the estate planning attorney for you!

To learn more about what property is subject to estate taxes or what exemptions and deductions may apply, contact us to schedule an initial consultation.

The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office at 801-438-8698.