translogoblank2Here 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 to 35%)
  • Using a Qualifed Personal Residence Trust (QPRT) to reduce the value
  • Using Life Insurance to Pay the Estate Tax (trade pennies for Dollars)
  • Gifting Strategies (get the assets out of your taxable estate and let the beneficiaries enjoy estate tax-free appreciation)