Will your estate owe taxes? A final tax return for the deceased needs to be completed - the amount being what the deceased would have paid if he or should had not passed.
In regards to estate taxes, the answer depends on:
- Your estate's gross value. Estate's over federal and possible state limits will owe taxes.
- Where you live. Almost half the states have their own estate or inheritance tax. See below.
- When you pass. Estate and inheritance tax rates can change annually so stay up to date.
To calculate the gross value of an estate (before the modifications) consider the value of all the property interests of the decedent at the time of death.
Real estate, life insurance payouts, retirement assets, jewelry and other personal property are a few of the many assets that are calculated in the gross estate.
2008 | $2 million | 45% | 2009 | $3.5 million | 45% |
2010 | Repealed | 0% |
2011 | $5 million | 35% |
2012 | $5 million | 35% |
2013 | $1 million | 55% |
For amounts between $0 and $10,000 over the federal estate tax limit, the tax liability is 18% of the amount.
- Example: If you pass in 2012 and your gross estate value is $5,010,000, the estate tax due within 9 months would be $1,800.
Amount over federal limit $10,000 to $20,000 $20,000 to $40,000 $40,000 to $60,000 $60,000 to $80,000 $80,000 to $100,000 $100,000 to $150,000 $150,000 to $250,000 $250,000 to $500,000 $500,000 to $750,000 $750,000 to $1,000,000 $1,000,000 to $1,250,000 $1,250,000 to $1,500,000 $1,500,000 and above |
Taxes due $1,800 + 20% of the excess over $10,000 $3,800 + 22% of the excess over $20,000 $8,200 + 24% of the excess over $40,000 $13,000 + 26% of the excess over $60,000 $18,200 + 28% of the excess over $80,000 $23,800 + 30% of the excess over $100,000 $38,800 + 32% of the excess over $150,000 $70,800 + 34% of the excess over $250,000 $155,800 + 37% of the excess over $500,000 $248,300 + 39% of the excess over $750,000 $345,800 + 41% of the excess over $1,000,000 $448,300 + 43% of the excess over $1,250,000 $555,800 + 45% of the excess over $1,500,000 |
- If a spouse is not a US citizen and estate taxes are possible, contact an attorney regarding a Qualified Domestic Trust (QDOT).
- For estates over the limit, the deadline for filing the Form 706 is 9 months from the date of the decedent's death. The payment may be extended, but not to exceed 12 months, but the return must be filed by the 9 month deadline.
Below is a list of states with estate taxes - please note this page attempts to be current as of 2011 but may be incorrect.
State Connecticut Delaware Illinois Indiana Iowa Kansas Kentucky Maine Maryland Massachusetts Minnesota Nebraska New Jersey New York North Carolina Ohio Oklahoma Oregon Pennsylvania Rhode Island Tennesee Vermont Washington DC Washington State |
Tax Type Estate Estate Estate Inheritance Inheritance Estate Inheritance Estate Estate/Inheritance Estate Estate Inheritance Estate/Inheritance Estate Estate Estate Estate Estate Inheritance Estate Inheritance Estate Estate Estate |
Exemption $2,000,000 $3,500,000 $2,000,000 $100 0 $1,000,000 $500 $1,000,000 $1,000,000/$150 $1,000,000 $1,000,000 $10,000 $675,000/$0 $1,000,000 $3,500,000 $338,333 $2,000,000 $1,000,000 $0 $675,000 $1,000,000 $2,000,000 $1,000,000 $2,000,000 |
Max. Tax Rate 16% 16% 16% 20% 15% 3% 16% 16% 16%/10% 16% 16% 18% 16%/16% 16% 16% 7% 10% 16% 15% 16% 9.5% 16% 16% 19% |
Bypass Trusts and Disclaimer Trusts are the same type of trust. These trusts start as one trust but after the first spouse passes the surviving spouse has 9 months to split the trust into two trusts so each spouse receives an exemption.
Prior to new laws in 2011, without the second trust and depending how assets are titled, assets typically pass to the surviving spouse who may pass many years later. When the surviving spouse passes, only his or her exemption can be used for the assets.
With a Bypass/Disclaimer Trust, assets designated for the deceased's trust are not to be used by the surviving spouse. Only income generated by those assets may be used, though in some cases the surviving spouse may gain access to these assets.
The new estate tax laws for 2011 and 2012 no longer require married couples to have a bypass trust/disclaimer trust to gain the second exemption for a spouse, but who knows if future laws will allow for both spouses to claim an exemption without those clauses.
When a married couple creates a trust, the language for bypass trusts and disclaimer trusts is usually several pages and very rarely is customized. It is normally template language so don't let yourself be charged an unreasonable amount if you opt for this type of trust.
A-B Trusts are similar to Bypass/Disclaimer Trusts in having two trusts but the two trusts are created when the A-B Trust is created.
Irrevocable Life Insurance Trusts (ILITs) are special trusts for holding life insurance outside the gross estate. The life insurance is typically used to pay estate taxes so assets do not need to be sold to pay the estate tax.
Contact an attorney if you believe your estate may be subject to estate taxes.