Does your plan account for estate taxes at the state level?

On behalf of Scaringi Law posted in Estate Planning on Friday, June 12, 2015.

According to a recent estimate, only a fraction of Americans will incur federal estate taxes. Said another way, only a small percentage of Americans will have estates valued over $10.86 million in 2015, assuming that both spouses utilize their exemptions.

However, readers should be reminded that many states also assess estate taxes at the state level, and the state exemption may be much lower than its federal equivalent. Pennsylvania, for example, has its own state inheritance tax. The personal representative of an estate generally bears the responsibility for filing an inheritance tax return for the decedent's estate that lists the estate property and its valuation.

An attorney that focuses on wills, trusts, probate and estate administration can be a great help in the preparation of an inheritance tax return. For example, there are issues to which an attorney can alert the personal representative. Asset values are usually based on the fair market value at the time of the decedent's death, although there can be exceptions. Deductions may be available for funeral expenses, administrative costs, debts and charitable bequests. Of course, the filing requirement of a state inheritance tax return is an administrative requirement; it does not alter other established tax rules, such as the default spousal tax rate of zero percent.

Assets placed in a trust may also qualify for special tax treatment. In the case of asset transfers to an irrevocable trust, for example, the settlor no longer is deemed the legal owner of those assets. Consequently, those assets should not incur estate tax liability, as the trust is the owner. Our law firm focuses on estate law and can explain these rules to clients who are interested in minimizing their tax exposure.

Source: Huffington Post, "Why Some of Us Pay More Estate Tax," Mike Branch, May 20, 2015

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