New York Estate Planning & Elder Law Blog
The estate tax in the United States is a tax placed on a person’s assets that transferred to beneficiaries after that person’s death. While only a certain category of assets is impacted by these taxes, they can have a profound impact on the administration of your estate plan. As a result, if you plan on engaging in estate planning any time soon, this article reviews some critical factors that you should consider the role of estate and gift taxes in the United States as of 2020.
# 1 – The Lifetime Exemption Amount
Estate taxes in this country impact only the highest-earning households in this country. This is because federal tax laws acknowledge a lifetime exemption, which allows you to exempt certain assets from what constitutes a taxable estate. While the amount of this exemption change yearly, in 2020 the lifetime exemption is $11.58 million for each person. This means that the exemption for married couples is $23.16 million. Any amount that goes over these thresholds is subject to an inheritance tax.
# 2 – The Annual Gift Tax Exclusion
The lifetime exemption includes taxable gifts, which is why it is often necessary to file gift tax return documents with the Internal Revenue Service to keep track of your giving. There is, however, an annual gift tax exclusion that lets a person gift up to $15,000 a year without having lifetime exemptions impacted. This $15,000 applies to each recipient, which means that it is possible to gift up to $15,000 to as many people as you desire without facing a gift tax.
# 3 – How Estates Are Taxed
The tax brackets used to tax estate are complex. There are 12 brackets into which an estate can fall whose rates range from 18% to 40%. The top estate bracket applies only to estates with a total value of at least $1 million. As a result, only the 40% bracket is applied to estates, which occurs when estates have a value of $11.58 million or more. This means that the estate tax rate in this country is effectively 40% for all estates that end up subject to a tax.
# 4 – How Estates Are Valued
The value of a person’s estate is equivalent to that person’s debts subtracted from their gross assets. While this amount is often easy enough to calculate when a person only owns things like cash or stocks with a direct cash value, it can be much more challenging to value an estate when there is no easily assignable monetary value. Valuation is also complex because not everything is included in a person’s estate. Some exempt assets include anything that is left to a surviving spouse or a charity, gifts that are less than the annual exclusion amount, and some trust assets.
Contact a Seasoned Estate Planning Lawyer
The estate planning process is not easy. Among other factors that you must consider, taxes play a profound role in shaping estate plans. If you need help deciding on what estate plan works best for you, consider contacting an experienced estate planning attorney Jim A Lyon today.