Why You’ll Likely Never Need To Worry About Estate Tax
Each year, an overwhelming majority of estates will get by without having to pay any federal estate tax, or “death tax”. This is because you can leave a rather significant amount of assets to the inheritor(s) of your estate before taxes would even begin to kick in, which is a huge relief. Just how much can you leave your loved ones tax-free exactly? Try $5.43 million. Double that to $10.86 million for married couples. While these figures sound a bit ridiculous, it provides almost everyone with peace of mind that they can leave behind everything they own without fear of their family having to pay taxes on their inheritance.
What is estate tax?
Simply put, estate tax is a federal tax on assets that are left to an individual after someone dies. These assets can include cash, real estate, and stock, among other forms of property. As previously mentioned, if the total amount falls under $5.43 million, it will be completely tax-free. Any assets left directly to a spouse or a charity are tax-free as well.
For a little perspective, the exemption amount was $650 thousand per person in 2001. Fast forward to 2015, and that’s a $4.78 million difference.
Who has to pay estate tax?
It’s projected that only 2 out of every 1,000 estates will owe federal estate tax this year.
It shouldn’t come as a surprise that such a small percentage of estates end up having to pay any estate tax. This fraction is the wealthiest of the wealthy. Estate tax really just exists to try and limit the big tax breaks wealthy estates receive as their wealth grows.
One thing to note is that it’s not the full amount of assets that get taxed. Estate tax is only levied on the amount that exceeds the $5.43 million exemption. While it might still be a nice chunk of change, it could be much higher. Think of it this way: An estate worth $6 million is $570 thousand over the exemption, so taxes would only need to be paid on the overage. In 2013, the average percent of estate values that were taxed was 16.6%.
In a nutshell, unless you’ve accumulated close to five and a half million dollars’ worth of property and assets, you’re safe from estate tax. Every last penny can be passed down tax-free.
If you’re seeking help with estate planning, call the Law Office of Christina Lesher PC today at (713) 529-5900 or use our contact form.