People pay estate taxes as part of the process of passing assets to beneficiaries after death. Although the state does not levy an estate tax on residents, the federal government does when your estate is valued above the threshold. When you inherit from a relative or friend living in a state that does tax estates, you will have to pay that, too.
You may believe your assets will never amount to the millions the government allows you to pass tax-free, but remember, the government considers everything you own, right down to the clothes in your closet, as assets. A knowledgeable attorney could help you understand the role of estate tax in Pottawatomie County probate cases.
State Estate Taxes
The federal government’s final tax on citizens, the estate tax, is also known as the death tax. Before beneficiaries receive their inheritances, the decedent’s assets are valued. If a tax is due, it must be paid.
Executors must give an accounting of a decedent’s assets to the government so it can determine if estate taxes are due. Assets include real property, vehicles, furniture, art, antiques, retirement and all bank accounts, and anything else a person calls their own. Estates must be worth $12.92 million for a single person or $25.84 for a married couple, with the highest estate tax rate set at 40 percent.
Beneficiaries may get a state tax bill for inheriting property in another state, for example, Kentucky or Hawaii, which do levy state estate taxes. A knowledgeable attorney in Pottawatomie County can advise you about whether federal estate taxes will be due in a probate proceeding.
The government does provide an estate tax break for married couples. Portability of the estate tax exemption occurs when the first spouse dies but does not use all or any of their $12.92 million exemption. Whatever the unused balance is can be transferred to the surviving spouse to add to their exemption.
The larger exemption allows the surviving spouse to leave more tax-free assets that presumably grow in value to beneficiaries when the second spouse dies. For example, one spouse dies, leaving an estate valued at $5 million to the other spouse. The estate is not subject to estate taxes and leaves a remaining tax exemption of $7.92 million, which the surviving spouse acquires through portability. If the surviving spouse’s estate is also valued at $5 million, it becomes $10 million after inheriting.
Even though a $10 million estate would still transfer tax-free to the surviving spouse’s beneficiaries, the surviving spouse could live another 25 years, likely enough time for the estate to grow beyond the $12.92 single exemption. The new exemption advantaged by portability would be $20.84 million, saving millions in estate taxes when the surviving spouse dies. A knowledgeable Pottawatomie County lawyer could explain estate tax exemption when reviewing a probate case.
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Two Qualifications for Portability
For a surviving spouse to gain the benefit of portability, the deceased spouse must be a U.S. citizen or legal resident. After the first spouse passes away, the surviving spouse must file a federal estate tax return within nine months, even if no estate taxes are due. An attorney could guide your efforts if you believe your deceased spouse may owe estate taxes or if you have questions about portability.
Contact A Junction City Attorney About Estate Taxes in Probate Proceedings
You may be wondering how estate taxes are applied while you are engaged in estate planning. You may also have been named an executor for a deceased loved one or are the spouse of a recently deceased person. You have questions, and we have answers about probate, how you should prepare for the transfer of your assets, and whether you will owe estate taxes.
Generally, you do not have to pay estate taxes to the federal government until your estate is valued at more than $12.92 million. However, there is a tax break called portability if you are married. If it sounds confusing, it can be, but you need not worry. One of our skilled attorneys could advise you about planning your estate and how to minimize estate taxes in Pottawatomie County probate cases.
