Thinking about who receives which assets from your estate can be pleasant in some ways. You may reminisce about your favorite memories with different people and assign them different property based on your experiences with them and their current life circumstances.
You may set some property aside to cover any debts that you have when you die. What you may not consider is the possibility that your estate could be subject to estate taxes. What your estate will lose to estate taxes will depend on the total value of the property you leave behind when you die and also where you live at the time of your death.
Every state has different probate laws
It can be challenging for people to understand their estate planning options in part because the rules are very different from state to state. Most states do not assess an estate tax. Those living in Nevada and California will not have to worry about the state government requiring property from their estates.
However, testators in Washington may have to plan ahead. Otherwise, estates worth $2,193,000 or more could be subject to tax rates of up to 20%. Estates probated in any part of the country may be subject to federal estate taxes. Currently, the federal tax rules only apply to estates worth $12,060,000 or more. Without planning, your loved ones may have to pay up to 40% of your estate’s value to the federal government in taxes.
How do you limit estate taxes?
How much your estate has to pay in taxes reflects how much property is in your name when you die. The more you exceed the exemption threshold, the higher the tax rate that will apply. Making strategic gifts now and moving certain property to trusts can be part of a successful attempt to minimize or eliminate estate taxes.
You may also need to revisit your estate plan occasionally, as federal and state exemption levels frequently change. If you intend to pass on real estate, a business or investment accounts that may be worth more than the current threshold for estate taxes in your location, you need to plan for the possibility or risk losing part of your legacy. Careful estate planning helps maximize what you have to pass on to your children and others when you die.