Taxation is a factor throughout your life, and you may feel as though it should no longer be an issue after you pass away. This may make sense to many of us, but we do have an estate tax on the federal level.
Most people are exempt from the tax, because there is a credit or exclusion that is relatively large. For the rest of 2015, the federal estate tax exclusion is $5.43 million. If you are transferring less than $5.43 million, your family would not be forced to pay the estate tax.
For those who are exposed, there is a 40 percent maximum rate.
There are a number of states that impose state-level estate taxes. We practice in California, and there is no state estate tax in our state. However, this does not mean that you have absolutely no worries when it comes to state-level estate taxes. If you own valuable property in a state that does have an estate tax, you should explore the laws, because you could face exposure.
Inheritance Tax
It would be natural to assume that the term “inheritance tax” is simply another way of describing the estate tax. In reality, these are two different forms of taxation.
An estate tax is applied to the entire taxable portion of an estate. Using our current $5.43 million exclusion as an example, let’s say that your estate is valued at $15.43 million. $5.43 million could pass tax-free because of the exclusion, but the remaining $10 million would be subject to taxation before it is distributed to the heirs.
Things are different with an inheritance tax. An inheritance tax would be levied on asset transfers to each individual nonexempt inheritor. There could be multiple impositions of an inheritance tax when one estate is being distributed.
There is no federal inheritance tax, but there are a few states that have state-level inheritance taxes. California is not one of them. The states that impose inheritance taxes are New Jersey, Maryland, Nebraska, Pennsylvania, Iowa, and Kentucky.
Free Report on Taxation
If you are concerned about taxation as it applies to estate planning, download our special report. This in-depth report will provide you with a great deal of useful information, and we are offering it to our readers on a complimentary basis at the present time.
To get your copy of the report, visit this page: Estate Tax Report.
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Attorney Caprice L. Collins is a top rated Harvard Law School graduate. She has 34 years of legal experience with a successful law practice devoted exclusively to Estate/Business Planning and Trust Administration. Attorney Collins is a well-respected keynote speaker on Wills, Living Trusts, Estate Planning, Business Planning and Trust Administration. She has appeared on California’s Real Estate Radio Station KTLK AM 1150 as a legal expert on Estate Planning and Living Trusts among many other notable media appearances.