As part of our commitment to provide detailed insights into estate planning and probate administration, this article explains the nuances of estate and inheritance taxes. These two concepts often confuse Trustees, Personal Representatives, and beneficiaries.
Estate and inheritance taxes are often used interchangeably, but in reality, they refer to two distinct types of taxes levied on the transfer of wealth from a deceased individual to their heirs. While both taxes are designed to generate revenue for the government, they are structured differently and have different implications for individuals and families.
It is important to understand that estate taxes and inheritance taxes are not identical. In the United States, there are both federal and state estate taxes.
Related: What Keeps You Up At Night? Estate Planning Questions
What are federal estate taxes?
Federal estate taxes are imposed by the federal government on the value of your assets exceeding a certain exemption amount, determined by the year of your passing.
The federal estate tax exemptions for 2024 are:
-$13.61 million for individuals
-$27.22 million for a couple
What are state estate taxes?
Taxes imposed by individual states on the value of your estate assets above the particular exemption for your state of domicile for the year of your passing. This is an amount your estate owes based on the taxable value of all your assets. These are paid by your estate, not by the individuals inheriting the assets.
The following states have estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia.
What are inheritance taxes?
Taxes imposed by each state on an individual beneficiary’s inheritance. This is an amount paid by each beneficiary based on the value of their inheritance.
The following states have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Inheritance Tax Frequently Asked Questions
What is the “sunset” provision for federal estate taxes?
An important point to note is the “sunset” provision for federal estate taxes. Unless Congress decides to make the federal estate tax exemption change permanent, it will “sunset” on January 1, 2026. This means the exemptions will revert to the 2017 levels, as adjusted for inflation – roughly around $7 million for individuals and $14 million for couples.
Conclusion
Navigating through the complexities of estate planning and administration requires an understanding of these fundamental concepts and meticulous planning and foresight. At Cornerstone Legal, we are committed to building your foundation and your confidence in these matters, providing you with the necessary guidance and expertise to ensure your estate is managed according to your wishes.
Contact Cornerstone Legal today if you would like more clarification on these taxes and how they may, or may not, apply to your estate plan.
Call (517) 708-2222 or email me at Katrina@CornerstoneLegalPLLC.com
