As an older adult, you may have accumulated substantial assets that you want to leave to your loved ones. Depending on where you live and the size of your estate, they may have to pay taxes. The federal government assesses estate taxes on substantial estates that are worth more than the federal estate tax exemption. Some states also assess their own estate taxes that are assessed before the assets are distributed. Finally, a few states also have inheritance taxes that the beneficiaries might have to pay after they receive their inheritances. Elder Care Direction can help you to understand these potential taxes and steps that you can take to minimize them.
Who has to pay the death tax?
Estate and inheritance taxes are collectively referred to as the death tax. However, very few people have to pay estate taxes. The federal estate tax exemption amount was increased by the Tax Reform and Jobs Act, and in 2019, it is $11.4 million per individual. Most estates will not have to pay federal estate taxes because they are worth less than this amount. Married couples can double the exemption since each will be able to claim $11.4 million.
A number of states have their own state estate taxes, including the following:
- Connecticut
- District of Columbia
- Hawaii
- Illinois
- Oregon
- Maine
- Massachusetts
- Maryland
- Minnesota
- Rhode Island
- Vermont
- Washington
The state estate tax exemption is the same as the federal exemption in many states. However, it can be as low as $1 million such as in Massachusetts and Oregon.
In addition to estate taxes, a few states also have inheritance taxes. These include the following states:
- Kentucky
- Iowa
- Nebraska
- Maryland
- Pennsylvania
- New Jersey
Surviving spouses in these states do not have to pay inheritance taxes. Surviving children and grandchildren who receive inheritances in Pennsylvania or Nebraska will have to pay inheritance taxes, however.
Pros and cons of death taxes
The estate tax has a high threshold, meaning that it will not apply to most people. Over 10 years, the federal estate tax is expected to bring in $225 billion.
If your estate will be subject to the estate tax, you will have to pay taxes twice, including when you earn your money and again after you pass away. If your estate continues to be passed on to future generations, it might continue to be taxed. There are huge loopholes in death taxes. Many wealthy people can avoid paying these taxes by reducing their taxable estates. You can give your beneficiaries gifts while you are alive each year of up to $15,000 per person.
While inheritance and estate taxes can be costly, they only impact a few people. Unless your estate is worth a substantial amount of money, you will not be affected by the federal estate tax.
Get help from Elder Care Direction
If you have questions or concerns about the inheritance tax, the federal estate tax, or the state estate tax, the professionals at Elder Care Direction are available to help you. Contact us today by filling out our online contact form to request a consultation.
