by Bezaire, Ledwitz & Associates, APC | Last updated Feb 25, 2020 | Estate Planning, Taxes
Here is a quick breakdown of all the basic points people should be aware regarding Estate Taxes. What are Estate Taxes? Estate taxes are paid to the federal government for the transfer of property upon death. Federal estate taxes are based on the size of the estate? What is the Current Estate Exemption? The current Exemption amount is at $5.25 Million per person. This amount is a total lifetime exemption for the estate. The exemption is not impacted by the number of beneficiaries or their relationship to the decedent. What is the Current Estate Tax Rate? Any amount over the exemption is taxed at a rate of 40%. What is the Unlimited Marital Deduction? The unlimited marital deduction means that an unlimited amount can be transferred from one spouse to another without any federal estate taxes. The federal government, currently, does not extend this deduction to same-sex marriages. The deceased spouses Estate Tax Exemption is used. This issue is set to be heard by the Supreme Court. Until the federal government recognizes gay marriage, estate planning for same-sex couples is critical. Does California Have an Inheritance Tax? No. We actually wrote it into the State’s constitution so bringing it back would require quite a bit of effort. Are There Ways of Reducing my Estate Tax Liability? The short answer is yes. There’s actually quite a few, but they go beyond the scope of this post. There are advanced estate planning strategies you could implement to reduce your tax liability. You can read more about them here: A-B trusts for Married Couples (using both exemptions) Using LLCs for income property (reduce the value by up... by Bezaire, Ledwitz & Associates, APC | Last updated Feb 22, 2023 | Taxes
The “Stepped up Basis” (new value) is a new basis which is available to property received through inheritance. The basis of a property is the value used to determine gain or loss for income tax purposes. Basically, it is the cost of the property (what you paid for it). The new value is determined by the of a value at the date of death of the person who owned it. This is the value of the property used to determine gain for income tax purposes. As you’ll read below there are tax advantages to ensuring that real estate passes through to heirs as inheritance, rather than as a gift during your lifetime. When does a property receive “Stepped up Basis?” Where it is received as an inheritance, either through a Revocable Living Trust or through a will (there will be probate fees and taxes when passed through a will), the piece of real estate receives a stepped up basis. However if it is received as a gift, for example, through a quitclaim deed, then the it retains the basis (value) established by the person who made the gift. For Example, let’s assume a man purchases a piece of home for $10,000 in 1940 and it was worth $1,000,000 at the time of his death. If the heirs of that man received the home as an inheritance (for example through a Revocable Living Trust) then the new value of that home would be $1,000,000. This means that if the heirs sold the house for $1,000,000, no income tax liability would accrue. However if the man transfered the house to the heirs during his...