What is the Federal Inheritance Tax?

federal inheritanceAny time property is transferred to a beneficiary after the original owner passes away, federal inheritance tax applies. Federal inheritance taxes also referred to as the “estate tax,” is a tax that is based solely on the market value of the property transferred to beneficiaries from the estate.

How Does Federal Inheritance Tax Law Work?

Under the federal tax code over sought by the Internal Revenue Service (IRS), a formula is used to determine if any tax is due on property, assets, or money transferred in an estate settlement. The method used depends on the value of the property, and the method used to transfer it over to the beneficiary.

Calculating the Gross Estate Value

First, the fair market value of the entire estate is calculated, which includes all property, cash, bank accounts, stocks, bonds, investment accounts, real estate, insurance, and other items of value. The fair market value of all items is totaled up to establish the Gross Estate Value.

Adjusting the Gross Estate Value

After the total value is established, adjustments are applied. Adjustments include paying off debts associated with the estate, such as the remaining mortgage balance on the family home. Also, fees associated with settling the estate come out of the gross estate value, including:

  • Estate administration fees
  • Attorney’s fees
  • Court costs and filing fees

Lastly, the marital deduction is removed from the gross estate value for a surviving spouse receiving property.

Determining the Net Value

Once the applicable deductions are taken from the gross estate, the remaining amount is used for the “net value” of the estate. The net value is what the IRS uses to determine if there are applicable estate taxes due.

New Federal Exemptions

As of 2017, the IRS has updated exemptions for the estate and gift tax. For 2017, the exemption is $5.49 million per individual. Therefore, an individual can leave up to $5.49 million to each hair and pay no federal estate tax. Furthermore, a married couple can shield up to $10.98 million without any taxes being applied.

The Chances of Paying Estate Tax

Unless your estate is worth several million, the likelihood of the IRS requiring your estate to pay any taxes is small.

Furthermore, your attorney can work with you to minimize your estate tax burden using a trust and other charitable methods.

Worried About Federal Inheritance Taxes on Your Estate?

If you are worried that your beneficiaries will be burdened with heavy estate taxes, speak with the Law Office of Andrew M. Lamkin, P.C. We can assess the net value of your estate and help lessen the tax burden so that your loved ones do not have to worry about losing a large portion of their inheritance to taxes.

To explore your options, schedule a free, no-obligation consultation today by calling the office at 516-605-0625 or request a consultation online.

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