The passing of a loved one is, of course, a difficult time. This trying period can be increasingly complicated when inheritances are involved, and a family in mourning must deal with government tax officials. By hiring a professional to deal with such sensitive issues, you can slightly reduce the trauma of an already harrowing ordeal and ease the process of transition that your family will inevitably go through.
The federal estate tax is a tax levied on property and assets when they are transferred from one individual to another after the original estate owner has passed on. As of 2015 the federal estate tax, also known as the unified gift and estate tax, only applies to inherited estates of up to $5.43 million.
The value of an estate that is exempt from taxation is tied to the value of taxable gifts a person made while alive. The $5.43 million figure represents the personal tax exemption of an estate. If taxable gifts were made during the original estate owners lifetime, that $5.43 million amount that is exempt will decrease in accordance with the value of the taxable gifts.
For estates left to a surviving spouse, a marital deduction exists which allows all assets, regardless of value, to be transferred tax free. The marital deduction applies to same-sex couples, but does not apply in situations where the surviving spouse is a non-citizen.
Additionally, in the case of married couples, whatever value of the $5.43 million personal exemption is unused by the original estate owner carries over to the surviving spouse. For example, an original estate owner passes on $7 million to a surviving spouse, this amount is tax free because of the marital exemption. The surviving spouse adds $1 million to the estate in their remaining years. When they pass, the $8 million estate is passed to their children. This estate would remain tax free because the surviving spouse's personal exemption was increased by the unused portion of the original estate owners personal exemption to $10.86 million.
Because the amount that is exempt from the federal estate tax is relatively large, it rarely comes into play when transferring most estates. The vast majority of estates have an assessed value that is much lower than $5.43 million. However, other financial issues often due arise after the passing of a loved one. If you or someone you know has any questions concerning federal estate taxes, or inheritance issues in general, it is always best to contact an impartial professional for more information.
Geddes & Company, P.C. is here to help. We understand the nuance and care the death of a family member must be handled with. Our tax professionals have years of experience handling estate tax issues, inherited wealth, and assets. In the wake of a loss, we know you need to focus on what's really important. Contact Geddes & Company, P.C. today for more information.