There are many common misconceptions about estate taxes when a person dies. First, any amounts left to spouses are tax-free. As reported in the article “Attorney At Law: What you should know about estate taxes” from TBR Newsmedia, any amounts above your state’s estate exemptions and the current federal estate tax exemption, which is $13,610,000, need estate planning.
Before considering these taxes, let’s clarify what makes up a taxable estate. All assets owned by an individual are counted towards their taxable estate, including IRAs, annuities, bank accounts, real estate and life insurance owned by the individual or for which the individual has the power to change the beneficiary.
Many states still have an estate tax, which often have far lower exemption levels than the current federal exemption. Your estate planning attorney will know what state estate or inheritance taxes your estate must address.
Many techniques are used to avoid estate taxes, including making tax-free annual gifts. In 2024, each individual may make tax-free annual gifts of up to $18,000 per person. These annual gifts can be used during your lifetime to bring the value of an estate under the threshold for state estate taxes and possibly even under federal estate taxes.
Charitable Remainder Trusts (CRT) or Charitable Lead Trusts (CLT) are used to reduce the size of an estate. A Charitable Lead Trust transfers property from your ownership to a trust set up to benefit a qualified 501(c)(3) nonprofit of your choice. The charity receives the income from the trust for a set period of years or the donor’s life, after which time the remaining assets either go back to the donor or to their beneficiary.
The Charitable Remainder Trust is the opposite. In this trust, the grantor or another beneficiary receives income for life or a set period of years. The charity receives the remaining assets at the death of the last income beneficiary or the end of the term.
Anyone concerned with exceeding the federal exemption for federal estate tax needs to begin planning now, since the exemption will be dramatically reduced as of January 1, 2026, unless Congress acts.
An estate planning attorney is needed to guide you through the process.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: TBR Newsmedia (March 8, 2024) “Attorney At Law: What you should know about estate taxes”