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Estate Tax Planning

Basic estate tax planning usually includes assigning a power of attorney and creating a will, but a vital aspect of estate planning is understanding the federal and state tax laws regarding estates. Ensuring your family is able to understand how to proceed with an estate following a death is an important aspect to avoid confusion and disputes.

Assets you own or control are a part of taxable estate.

A person’s taxable estate is the net value of everything that a person owns, controls and in some cases, has given away prior to death minus what a person owes and some of the costs of settling the estate.

Taxable estates generally include:

  • Individual Retirement Account (IRA) and retirement plans 
    • IRA's and retirement plans are subject to federal and state income tax, either by the retiree or their heirs
  • Life insurance
    • If you own the life insurance policy, the death benefit will still be part of your taxable estate although life insurance proceeds are income-tax free for your beneficiaries
  • Annuities
    • Annuities are typically a fixed sum of money you pay someone each year, usually for the rest of their life
  • Assets held in a revocable trust
    • Also known as a “living trust”, revocable trusts are trusts that can be modified at any time
  • Assets held as joint tenants with rights of survivorship
    • In this situation, if one owner dies, that owner's interest in the property or account will pass to the surviving owner or owners by operation of law, avoiding probate


The calculation of the tax is fairly simple once the valuation of the estate assets and any tax-advantaged elections have been made. The tax owed is the amount due after a credit against taxes for an exemption amount. In 2016 the exemption amount is $5,450,000. The tax rate on a taxable estate exceeding the exemption amount is 40%. Many states also claim a small amount of estate tax.

Initial steps to take in settling an estate:

To effectively settle an estate, follow the below steps. Planning ahead can save a significant amount of tax. Strategies for transferring assets, reducing asset values, or making charitable gifts can all be employed with great effect if they are started soon enough.

  • Make a descriptive list of all assets including estimated value, location and ownership portions
  • Gather the prior three years income tax returns
  • Gather any Gift Tax returns (Form 709) that the decedent may have filed
  • Make a descriptive list of all debts owed by the decedent
  • Obtain a copy of the will and any trusts created by the decedent
  • Obtain copies of any life insurance policies, annuities, or pension agreements
  • Meet with your attorney and CPA before probating the Will

 

If you are interested in discussing estate tax planning or to learn more about inheritance tax, contact BatesCarter. We have over 50 years of estate tax accountant experience. We can decide together what would be the best option for your specific situation.


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