Estate Taxes: How Do They Affact You

Sometimes, after a loved one dies, you may find that you are the person whom they have chosen to receive their estate. And, while finding out that you’ve inherited an estate can be flattering and exciting, keep in mind that taxation does apply.   

Federal Taxation

You may be able to skip out on federal taxation if the estate does not have a high value.

In general, federal taxes usually only apply if your estate’s value is over $11.4 million. The value over this amount is what is taxed. If you’re unsure about your estate’s value or if you need to pay taxes or how much, be sure to contact a financial professional for guidance.

State Taxation

When you inherit an estate of any value, you may have to pay state taxes. These taxes exist in thirteen different states. However, exemptions do apply based on the worth or value of your estate. The tricky thing, though, is that exemption amounts vary from state to state.

So, if you find that your state does have an estate tax, you’ll probably need some professional help to determine how much you owe.

If your estate has to pay anything to the state, deductions are allowed, which can help with any federal taxes that may apply. However, it’s still a good idea to seek professional tax help if you find yourself in this situation. That way, you can avoid errors and ensure you pay what you’re supposed to.

Being excited when you receive someone’s estate is normal. However, don’t get so excited that you neglect any tax responsibilities that may apply. In fact, as soon as you find out about your inheritance, the best course of action is always to consult a tax professional.

Taxes that Affect Estates

We are all going to leave things behind when we die. And, if we plan carefully, those things can go to the people we want them to, like our family members and friends. However, it is important to remember that our estates are affected by certain taxes, and we need to be aware of and plan for those taxes if we want everything to ultimately go as we planned.  

Gift Taxes

One of the first taxes that can affect an estate is what is known as the gift tax. Federal law mandates that a person can not give more than $14,000 worth of gifts to a single person tax-free. Once that value amount is reached and surpassed, a gift tax comes into play.

Of course, there are ways around paying the gift tax. For example, there is a lifetime gift tax exemption of $5,340,000 that can help to offset taxable gifts and keep you from paying taxes out of your own pocket.

To learn more about gift taxes and related exemptions or if you’re concerned about how this tax will affect your estate, be sure to speak with a tax professional.

State Inheritance Taxes

Some states collect special inheritance taxes from the beneficiaries of a deceased person’s estate. These states include:

l  Iowa

l  Pennsylvania

l  Kentucky

l  New Jersey

l  Maryland

l  Nebraska

Fortunately, not all beneficiaries have to pay the tax. Surviving spouses of the deceased and reputable charities are exempt from the tax. Other exemptions are possible in some of these states as well, so it’s always best to check with your tax adviser if you have questions or concerns about possible taxation of your gift.