Believe it or not, there are over 20 million millionaires in the US today. If you’re one of them, you need to know about estate taxes, inheritance taxes and gift taxes to which you, your estate and/or your heirs may be subject. You also need to know how an experienced local estate planning lawyer can help you minimize or eliminate them.
Estate Tax
The federal estate tax currently stands at 40% of your taxable estate when you die. This is the amount that your estate itself must pay before your remaining assets can pass to your heirs. Although your estate consists of virtually everything you own at your death, however, not all of it is subject to the estate tax.
For starters, you currently have a lifetime federal estate tax exemption of $11.7 million. Keep in mind, however, that this exclusion amount was set by the Tax Cuts and Jobs Act of 2017 and will expire in 2026. It will then revert to $5.6 million unless Congress decides differently.
In addition to this federal estate tax, the following states and the District of Columbia have their own estate tax:
- Connecticut
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
- Washington, D.C.
Inheritance Tax
Unlike the estate tax which your estate pays, inheritance taxes are paid by the heirs who receive your assets when you die. While there is no federal inheritance tax, the following states have state inheritance taxes:
- Iowa
- Kentucky
- Maryland
- Nebraska
- New Jersey
- Pennsylvania
Depending on which state your heirs live in, this tax could be as high as 18% of their inheritance.
Gift Tax
Unfortunately, the federal government also levies a tax on gifts you make that are worth over $15,000. This gift tax, which you pay, ranges from 18% to 40% depending on the value of the gift.
The good news is that you currently have a $15,000 gift tax exemption per recipient per year. In other words, you can make a $15,000 gift to as many people or charities as you wish each without triggering the gift tax. This annual exclusion doubles to $30,000 for gifts that you and your spouse jointly make.
In addition, you have a lifetime gift tax exclusion that works in conjunction with your lifetime estate tax exclusion.
Obtaining Legal Help
An experienced local estate planning lawyer can help you reduce or eliminate these potentially devastating taxes on you, your estate and your heirs. Once you fully advise him or her of the assets you own and their current and potential future value, he or she can advise you of legal ways in which you can go about achieving your goals and objectives with the least possible amount of taxation.
As a side note, remember that if you have received a settlement from a personal injury lawsuit, such as a car accident, you may want to include that settlement in your estate plan, as the lawyers at Cohen & Cohen explain. Be sure to work with both types of attorneys in this situation to ensure you are making the best plans possible.