Do I Need to Worry About Estate Taxes?

There has been a lot of talk in the news lately regarding the Federal Estate Tax, and more specifically, the potential abolishment of it.  But, do you need to worry about the Federal Estate Tax?

As the tax law currently stands, the Federal Estate Tax is levied on individual decedent’s estates that are in excess of $5.49 million, which will increase to $5.6 million in 2018.  This means that Federal Estate tax, with a current maximum tax rate of 40%, would only be paid on the portion of a decedent’s estate that is over that amount.  Additionally, spouses can elect to use any unused exemption of their previously deceased spouse, meaning that spouses could have a joint estate up to $11.2 million in 2018 without paying any Federal Estate Tax.  There are also exemptions allowed when calculating the total estate, such as charitable contributions.

The current proposed changes to the Federal Estate Tax in the bills pending before Congress would double the exemption amount over time, and repeal the Federal Estate Tax completely in the year 2024.  The current proposed tax bills also include a decrease in the maximum Federal Estate Tax rate to 35%.  As the new tax bills move through Congress, these details might change and we are keeping a close eye on the bill and any proposed changes.

One thing to keep in mind is that, under the current tax law, inherited assets receive a step-up in basis to fair market value at the time of the decedent’s death, meaning that any capital gains tax that would have been due had the decedent sold the asset prior to death would not be owed if the heir sells the asset at the same fair market value immediately after the decedent’s death.  The current proposed tax bills do not include any change to the stepped-up basis rules, but changes have been actively discussed in relation to the repeal of the Federal Estate Tax and could become a part of the final bill.

Only time will tell what happens to the Federal Estate Tax, but it is important for everyone to keep a close watch on the pending tax reform bills and their potential impact on estate taxes.  If you have questions about your estate plan or need help evaluating any estate tax issues and strategies, the estate planning attorneys at MTSE are available to help.  Just give us a call at 816-364-6677.

Authored by: Lindsey Holcumbrink