According to the IRS, estate tax is a tax on your right to transfer property at your death. The tax is determined by calculating the fair market value of everything you own or have certain interests in at the date of death. The total of all these items is referred to as “Gross Estate,” which includes cash and securities, real estate, insurances, trusts, annuities, business interests, and other assets.
Once the Gross Estate is calculated, certain deductions are allowed before arriving at “Taxable Estate” — these deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities.
After the net amount is calculated, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.
When Estates Are Complicated
When it comes down to it, estate planning is about so much more than planning for liquidation of an estate upon death. Life circumstances can make things especially complicated, especially if you’re high net worth individual or you have challenging inheritance issues. In addition, the laws change often.
“What makes the estate tax particularly complex is the fact that the law keeps changing. Both the amount that one can die with and still escape the tax and the rate that is charged when it does apply have fluctuated radically in the last several years,” according to an article in Forbes Magazine.
An estate plan includes various elements such as wills, trusts, beneficiary designations, powers of appointment, property ownership, personal gifts and charitable gifts, and powers of attorney, specifically the durable financial power of attorney and the durable medical power of attorney.
Contact Millan & Co. online or call 512-479-6819 to figure out the best tax regulations for your estate.