Will my estate be subject to death taxes?
What is my taxable estate?
Q: Will my estate be subject to death taxes?
There are two types of death taxes that you should be concerned about: the federal estate tax and state estate tax. The federal estate tax is computed as a percentage of your net estate. Your net taxable estate is comprised of all assets you own or control minus certain deductions. Such deductions can be for administrative expenses such as funeral and burial costs as well as charitable donations.
As a result of the federal tax overhaul signed into law in December 2017, the federal estate tax exemptions were doubled. For decedents dying in 2018, the federal estate tax applies to estates with net assets of $11,200,000 or greater for single persons and double that for married persons. These amounts are adjusted annually for inflation. Given these large exemption amounts, it is estimated that the estate tax will apply to only 1800 estates in 2018.
Beware however that absent new legislation, these increased estate tax exemption amounts will revert back to the prior exemption amounts ($5,000,000 base, indexed, for single persons) for decedents dying after December 31, 2025.
The 2017 federal tax legislation creates excellent planning opportunities for very high net worth individuals and married couples. If you have or expect to have an estate that exceeds $5,000,000 you should consult an estate planning attorney regarding potential tax planning opportunities.
For decedents dying in 2016 or later, Tennessee has abolished its inheritance tax.
Even if you believe that that you may not be affected by the federal estate tax, you may have a taxable estate in the future as your assets appreciate in value. You should regularly review your estate plan with an estate planning attorney to ensure your estate plan takes into account changes in the tax laws as well as shifts in your individual circumstances.
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Q: What is my taxable estate?
Your taxable estate comprises of the total value of your assets including your home, other real estate, business interests, your share of joint accounts, retirement accounts, and life insurance policies minus liabilities and deductions such as funeral expenses paid out of the estate, debts owed by you at the time of death, bequests to charities and value of the assets passed on to your U.S. citizen spouse. The taxes imposed on the taxable portion of the estate are then paid out of the estate itself before distribution to your beneficiaries.
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