Who Pays Federal Estate Taxes?

Federal estate tax may apply at your death if your estate is large. For individuals who died in 2016, the threshold is $5,450,000. This is the amount of wealth excluded from federal death taxes and the threshold is indexed for inflation. The threshold increases according to that index each calendar year. For most estates, the total estate value does not exceed the threshold exclusion amount. When this is the case, there is no requirement to file a federal estate tax return, and no federal estate taxes are owed.

To determine if an estate exceeds the threshold exclusion amount, it is necessary to determine the value of your gross estate. Your gross estate includes the value of all property in which you hold an interest on your date of death. The most obvious assets are cash, publicly traded securities, and real estate. However, life insurance proceeds payable to your heirs, if you owned the policy, is included in your gross estate. Other examples of assets payable to beneficiaries – but still included in the value of your gross estate – are certain annuities payable to your estate or heirs, the value of certain property you transferred to others within three years of your death, and the value of assets held in trusts established by you or others, in which you retain certain powers.

The next calculation involves reducing your gross estate by allowable deductions to determine your taxable estate. A few examples of deductible expenses include funeral expenses paid from your estate assets, debts owed at the time of your death and paid after death, and the value of property that passes to your surviving spouse. You should consider consulting with an experienced estate planning attorney if your estate is large enough to possibly exceed the indexed exclusion amount for federal death tax purposes.

Boeglin, Gerardot and Grubbs is available to advise you with respect to death tax issues. You may reach us at 260-436-3883.