Updates to Federal Estate Tax
The following is a guest blog post from a fellow estate planning attorney based in Chicago, Michael A. Goldberg, of Johnston Tomei Lenczycki & Goldberg LLC:
The United States Federal Estate Tax
There has been a lot of commotion regarding the Federal Estate Tax. It has been decried as punitive and unjust, while its proponents state that it is necessary to prevent an over-accumulation of wealth in the hands of a few powerful families. So just what is the Federal Estate Tax, and why is it so polarizing?
The Operation of the Federal Estate Tax
The Federal Estate Tax is a tax on a person’s gross assets upon their passing. If a person passes away with more than the exempt amount (currently $11.18 million in 2018), then the estate must pay a tax out of the assets available. The tax rate is progressive, and increases as the taxable estate increases. The highest taxable rate is currently 40% for taxable estates after the first $1,000,000.
Filing an Estate Tax Return
If you are acting as a fiduciary for a loved one who has passed away, and the decedent had a taxable estate, then you will most likely need to file a Federal Estate Tax Return within nine months of the date of death. It is crucial that you speak with an attorney and accountant to make sure deadlines are not missed, as penalties can be significant.
Avoiding the Estate Tax
There are a number of techniques that can be utilized to minimize Federal Estate Taxes. The most well-known technique is so-called “portability.” The Federal Estate Tax has portability, meaning that a surviving spouse can use the predeceased spouse’s unused exemption amount upon his or her passing. This can increase the second spouse’s exempt estate above and beyond the $11.18 million. This will reduce or maybe even eliminate the estate tax due.
Another option is to disclaim assets upon the first spouse’s death. When the first spouse dies, if good planning was put in place, the surviving spouse can disclaim certain assets, thus keeping those assets out of the surviving spouse’s estate. The disclaimed assets will then go according to contingency, such as to children or other intended beneficiaries. The assets will no longer be part of the surviving spouse’s estate upon passing and therefore will not increase any tax burden.
One final option of note is to make bequests to charity. Bequests to charity are not calculated as part of a taxable estate and thus will reduce the estate tax burden. If you want to make charitable bequests, it is important that you speak with an attorney so that the bequests are done properly.
Contact the Memphis Estate Planning Attorneys at Alliance Law & Counseling Today to Discuss Minimizing the Federal Estate Tax
If you are concerned that your estate will be subject to the Federal Estate Tax upon your passing, then it is crucial to speak with an estate planning attorney such as the Memphis estate planning attorneys at Alliance Law & Counseling today at 901-271-3750.
The Federal Estate Tax can be onerous for your family, but there are things that you can do to minimize it. Speak with us to see what options are available.