The estate tax is a tax on property that is transferred to others upon your death. Estate taxes are assessed on the total value of your estate — your home, stocks, bonds, life insurance, and other assets of value — that is over the applicable exclusion amount. Everything you own, whatever the form of ownership and regardless of whether the assets have been through probate, is subject to estate taxes.
Estate taxes are calculated on the net value of your estate, which includes all your assets less allowable debts, expenses, and deductions (such as mortgage debt and administrative expenses for the estate). If you have made no taxable gifts, you can estimate estate tax by simply subtracting the applicable estate tax exclusion from your taxable estate, and the resulting taxable value is multiplied by the applicable estate tax rate (currently, 40%).
The most common exception to the federal estate tax is the unlimited marital deduction. The government exempts all transfers of wealth between a husband and wife from federal estate and gift taxes, regardless of the size of the estate. (The surviving spouse must be a U.S. citizen to qualify for this deduction.) However, when the surviving spouse dies, the estate is subject to estate taxes and, unless the appropriate portability preparations have been made, only the surviving spouse’s applicable exclusion can be used. There is also an estate tax deduction for transfers to charity.
The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount to $11.18 million in 2018. It is $13.61 million in 2024. After 2025, the exclusion is scheduled to revert to its pre-2018 level and cut by about one-half.
If you die after 2010, your estate can transfer your unused applicable exclusion amount to your surviving spouse (a concept referred to as “portability”).
Check with your tax advisor to be sure that your estate is protected as much as possible from estate taxes upon your death.
This content has been reviewed by FINRA.
Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc.
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