What Is Estate Tax?

The estate tax is a tax on transferring assets from a deceased person to their heirs or beneficiaries. The federal estate tax in the United States is imposed on the transfer of the taxable estate of every decedent who is a US citizen or resident. The taxable estate includes all assets that the decedent owned or controlled at their death, such as real estate, investments, and personal property.

The history of the US estate tax dates back to 1797, when Congress imposed a tax on the value of legacies and inheritances. Since then, the estate tax has undergone numerous changes and revisions. In its current form, the federal estate tax was first enacted in 1916 and has since been subject to many amendments, including a temporary repeal in 2001.

Estate tax planning is an essential part of comprehensive financial planning. Proper estate planning can minimize the impact of estate taxes on an individual’s estate and ensure that their assets are distributed according to their wishes. Estate planning can also help reduce family conflicts and provide financial security for surviving family members.

How Estate Tax Works

To understand how estate tax works, knowing about exemptions and thresholds is essential. The current federal estate tax exemption is $13.61 million per person, meaning any estate worth less than this amount is not subject to estate tax. The estate tax exemption is adjusted annually for inflation, which may increase or decrease depending on the inflation rate.

For estates that exceed the exemption threshold, the estate tax is calculated based on the estate’s taxable value. The taxable value is determined by subtracting any debts, funeral expenses, and estate administration costs from the estate’s total value. The resulting amount is subject to the estate tax rate, which ranges from 18% to 40%, depending on the estate’s value. It’s important to note that the estate tax is a progressive tax, which means that the tax rate increases as the value of the estate increases. For example, if an estate is valued at $15 million, the first $13.61 million is exempt from the estate tax, and the remaining amount million is subject to a rate that increases until it reaches 40% for all amounts in excess of $1 million over the exemption amount.  The progression looks like the following:

Read More

DARLENE HART - Tax Cuts And Jobs Act Estate/Gift Tax

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, increased the life-time exclusion amount of transfers subject to Estate/Gift tax from $5 million to $10 million. Adjusted for inflation, this amount is $11.4 million in 2019. The TCJA also provides that this higher amount will revert to its pre-TCJA amount after 2025.

The IRS has now issued TCJA final regulations to address concerns that an estate tax could apply to gifts exempt from gift tax by the increased TCJA amounts in excess of the historic exclusion amount.

The final regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the TCJA exclusion amount or the or the pre-TCJA amount applicable on the date of death with respect to gifts made during the decedent’s lifetime.

Read More

Mitchell R. Miller - Estate And Trust Lawyer, Beverly Hills, CA

In spite of the IRS’s information campaign, many people still do not know that the IRS has mounted a huge enforcement effort in the international arena to get people to report foreign accounts and foreign income. And if you have foreign assets, you might be surprised that this enforcement effort could apply to you.

Specifically, the IRS has for all practical purposes eliminated bank secrecy for U.S. citizens and residents, forcing foreign banks to identify all their U.S. account holders. In many cases, foreign banks have simply kicked out all their U.S. depositors. And the penalties for not reporting foreign accounts, income and transactions grow larger every year.

In one recent case, a federal jury held that a man who had failed to report the existence of his foreign account or include the interest from the account in his income was liable for a penalty of 150% of the highest value of the account. That’s right — ONE AND A HALF TIMES THE ENTIRE VALUE OF THE ACCOUNT!

And that’s only the penalty. There’ll be tax, interest on the tax, and interest on the penalty to boot!

What types of foreign items are you required to report?

Read More

Charles Woodson, Estate Tax, Inheritance Tax Expert

A frequent question is whether inheritances are taxable. This is a frequently misunderstood question related to taxation and can be complicated. When someone passes away, all of their assets will be subject to inheritance taxation, and whatever is left over after paying the inheritance tax passes to the decedent’s beneficiaries.

Sound bleak? Don’t worry, very few decedents’ estates ever pay any inheritance tax, primarily because the code exempts a liberal amount of the estate from taxation; thus, only very large estates are subject to inheritance tax. In fact, with the passage of the Tax Cuts & Jobs Act (tax reform), the estate tax deduction has been increased to $11,180,000* for 2018 and is inflation adjusted in future years. That generally means that estates valued at $11,180,000* or less will not pay any federal estate taxes and those in excess of the exemption amount only pay inheritance tax on amounts in excess of the exemption amount. Of interest, there are less than 10,000 deaths each year for which the decedent’s estate exceeds the exemption amount, so for most estates, there will be no estate tax and the beneficiaries will generally inherit the entire estate.

* Note that, as with anything tax-related, the exemption is not always a fixed amount. It must be reduced by prior gifts in excess of the annual gift exemption, and it can be increased for a surviving spouse by the decedent’s unused exemption amount.

Read More

According to Internal Revenue Code Section 1014 the basis of property acquired from a decedent is the fair market value of the property at the date of the decedent’s death.

This is often referred to as stepped up basis and it is profoundly significant for US taxpayers dealing with the myriad of issues surrounding estate planning or tax preferential transfer of assets. Read More