Though it’s rare to hear good news out of the Internal Revenue Service, for those worried about the potential pain of estate tax, a recent announcement may just qualify.
That’s because the IRS revealed earlier this month that the estate tax exemption amount would climb in 2015. To find out more about the estate tax exemption and what that can mean for your family, keep reading.
What is the estate tax?
Starting from the beginning, what exactly is the estate tax? The estate tax refers to the right of the government to tax the transfer of a person’s property at the time of their death.
To do this, there must first be an accounting of all the assets owned by the person at the time of his or her death, including real estate, personal property, business assets, insurance and cash. A fair market value is then applied to these items and the total value of the assets is referred to as the person’s gross estate.
What is the estate tax exemption?
Once the gross estate figure is established, couples are then permitted to make certain deductions before arriving at the value of their taxable estate. Included among these deductions is the personal estate tax exemption, which represents an amount of property that can pass tax free, no matter who inherits it. So long as your estate is worth less than the exemption amount, you will not owe any federal estate taxes when you die.
One exception to this rule is property left to a spouse. The IRS says that all assets left to a surviving spouse pass free of estate tax, meaning the exemption amount doesn’t matter.
What is the current exemption amount?
Currently, the IRS says that the personal estate tax exemption is $5.34 million. This means that a person can leave behind $5.34 million to whomever he or she wants without fear of having the estate chipped away at by taxes. Married couples receive the benefit of two individual exemptions, meaning the total rises to $10.68 million.
What is the new exemption amount?
Thanks to a recent inflation adjustment, the amount of money that is exempted from the estate tax has now risen a bit, to $5.43 million per individual or $10.86 million per couple.
What is the estate tax rate?
Let’s say despite the recent news you still have a taxable estate beyond the exemption amount, what then? Then your estate will have to pay a tax on that amount over and above the exemption. Currently the top estate tax rate on amounts beyond the personal exemption is 40 percent.
How many people does the estate tax impact?
Now that you know how much money you can shield from estate taxes, it is probably worth knowing how likely it is you will be impacted by such a tax in the first place. According to a recent Wall Street Journal article, a very small percent, or 0.12 percent of all estates are expected to owe any federal tax this year. This represents only 3,700 estates in the entire country, an incredibly small group and thus not something the vast majority of Minnesota families should spend much time worrying about.
An experienced Minnesota estate planning lawyer can help walk you through the complicated process of establishing a workable estate plan. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.
Source: “Estate Tax Exemption for 2015 Is Announced,” by Laura Saunders, published at WSJ.com.
