The federal estate tax is sometimes called the death tax. It’s a one-time tax that is imposed at death. Forbes’ recent article, “Eight Things You Need To Know About The Death Tax Before You Die,” explains that it’s not unusual for people to mix up estate taxes with income taxes. The federal estate tax is a transfer tax imposed on individuals with estates over $11.4 million ($22.8 for couples). The tax is on anything over that amount and ranges between 18% and 40%. However, if you die with an estate less than $11.4 million in 2019, no estate tax is due. Some states have an estate tax as well that is separate from the federal estate tax. Currently, California does not have an estate tax. For example, Massachusetts has a $1 million estate tax exemption. A tax may also be levied in a state where you own real estate.
Assets in your name only and everything else you had control over will be added into your gross estate. For example, all stocks, bonds, bank accounts and life insurance death benefits are included, as well as any real estate, business interests, jewelry, household furnishings and artwork. Note: just because your family avoids probate with your estate, doesn’t mean they won’t have to deal with estate tax. For instance, life insurance is in your gross estate for estate tax purposes, if you owned or could control the policy. IRAs and 401(k)s are also included in your gross estate for estate tax purposes. Just because these assets aren’t included in the estate because they have a named beneficiary, it doesn’t mean they’ve avoided estate tax. It depends upon the level of control you had over the assets.
If you owned property jointly with a spouse, half of the home’s value is included in the gross estate. If you owned property jointly with someone else (not your spouse), then 100% of the value is included in the gross estate—unless you can prove that the other party contributed some or all of the value. If you’re the beneficiary of a trust your parents created for you, those assets may be included in your gross estate, if you have certain rights over the trust assets.
If you’re married to a U.S. citizen, you get an unlimited marital deduction for all of the assets you leave to your spouse. Your non-US Citizen spouse has different rules that apply.
Talk to an experienced estate planning attorney about your own estate tax liability, and what actions you can take to decrease any taxes that may be due.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Forbes (May 20, 2019) “Eight Things You Need To Know About The Death Tax Before You Die”