"Currently the Federal Estate tax kicks in if the taxable estate is greater than $5.34 million." --You have heard this expression, but do you know what it means?
The Estate Tax is a tax on your right to transfer property at your death. The first step is determining the total value of the estate. It consists of an accounting of everything you own or have certain interests in at the date of death. The value of the property is the fair market value , not necessarily what you paid or what their values were when you acquired them. The property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.
The next step is to determine the Taxable Estate. Deductions may include mortgages, other debts and estate administration expenses. Any property that passes to surviving spouses and qualified charities is excluded from the taxable estate. This includes legally married, same-sex couples but does not include a spouse who is not a US citizen. The value of Taxable gifts can also increase the taxable estate. Sometimes an Estate tax return is filed to allow a surviving spouse to claim the unused deduction of the deceased spouse.
Despite the new generous federal estate tax law, we also have to look at State Estate and Inheritance Taxes. There are 19 states and the District of Columbia that impose separate state taxes. The estates of Washington residents, as well as the estates of nonresidents who own real estate and/or tangible personal property located in Washington, are subject to a state estate tax. The filing threshold for 2014 is $2,012,000. It is adjusted yearly for inflation, but is still considerably lower than the federal amount. Since Washington is a community property state, any property owned jointly with a spouse is valued at 1/2 the current fair market value. Either the Washington estate tax forms and estate tax payment or a request for an extension to file the Washington estate tax return with an estimated payment are due nine months after the decedent's date of death. The taxes collected are currently distributed to the Education Legacy Trust Fund.
There are also currently six states that collect an inheritance tax. This tax is a tax to the person who inherits property. These states include Iowa, Kentucky, Maryland and New Jersey, Nebraska and Pennsylvania.
If you would like additional information or to start on the path of estate planning, contact us. We can help you set up a team to accomplish your objectives.