The federal estate tax is a looming threat to your legacy if you have been able to accumulate a significant store of wealth. This tax is not a factor when assets are being transferred between citizen spouses, but it can enter the picture when inheritances are being distributed to others.
Most people are not going to be exposed to the federal estate tax, because there is an exemption or exclusion that is relatively high. This blog post is being written late in 2015. For the rest of this year, the estate tax exclusion stands at $5.43 million. In 2016, an inflation adjustment will be applied to bring the figure up to $5.45 million.
In addition to the federal estate tax, there are a number of states in the union that impose state-level estate taxes. We practice law in the state of Florida, and fortunately, there is no state-level estate tax in the Sunshine State.
However, many people relocate to Florida from states in the Northeast such as New York, New Jersey, and Connecticut. There are state-level estate taxes in these states. If you own valuable property in one of these states, the estate tax in that state could be applicable to you, even if you are a Florida resident.
Internal Revenue Service Form 706
When an estate is subject to the federal estate tax, an estate tax return must be filed. This is done through the completion of Internal Revenue Service Form 706. A representative of the estate must file the form within nine months of the passing of the decedent, but the IRS could be petitioned to grant a six-month extension if more time is needed.
Portability is another relevant factor. The federal estate tax exclusion is afforded to each individual taxpayer. If you predecease your spouse, your spouse would be able to add your exclusion to his or her own exclusion, because the estate tax exclusion is portable between spouses.
You have to elect portability by filing IRS Form 706; it is not automatically granted.
Estate Tax Efficiency Strategies
If your estate is going to be exposed to death taxes, action is required. The federal estate tax carries a hefty 40 percent maximum rate, so this tax could seriously impact the financial future of your family.
There are tax efficiency strategies that can be implemented to ease the burden. The ideal course of action will depend upon the circumstances, and each situation is unique.
Our firm can help if you would like to discuss your tax situation with a licensed professional. We can answer all of your questions, become apprised of your objectives, and make the appropriate recommendations.
To begin this process, register to attend one of our free Living Trust Seminars through this page: Naples FL Estate Planning Attorneys.