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  • Lynn K. Girvin, Esq.

Estate Tax in a Nutshell

The subject of estate taxation can be pretty tedious to most people. Here I will briefly explain three basic tax facts relating to estate planning that every family should know.

The Federal Estate Tax Isn’t as Scary as it Sounds

First, the federal estate tax is imposed by the federal government on the taxable estate of every decedent who is a citizen or resident of the United States. Estate taxes are assessed on the money and property that you pass to your loved ones when you die. Thankfully, the tax isn’t due until you’ve given away more than $5.45 million in cash or other assets so most people don’t have to worry about it. Recent studies show that only about 2% of the population will owe federal estate tax so basically the estate tax is a tax on very large inheritances by a small group of lucky people.

In determining what property is taxed, the IRS takes into account the entire state of the deceased individual (gross estate). The fair market value of everything you own or have an interest is considered part of your gross estate, including cash, real estate, life insurance, retirement plans, securities, business interests, and other assets. Once you have accounted for the gross estate, certain deductions are allowed and may include mortgages, estate administration expenses, property that passes to surviving spouses, and qualified charities.

Lastly, California does not impose its own estate tax or inheritance tax!

More Good News …

Another tax angle and one that more people are familiar with is the annual gift tax exclusion. This exclusion allows you to give $14,000 per year to as many people as you want free of any tax or IRS reporting. In other words, a once a year gift or even a series of gifts made to the same person during the course of one calendar year that do not exceed $14,000 are considered "freebies" when it comes to federal gift taxes. And currently, payments made directly to providers of education or medical care services also are tax-free and do not count against the annual exclusion or gift tax exemption amounts.

What is the Marital Deduction

If you are married you can leave everything to your surviving spouse with no estate tax liability when you die. Then at the death of the surviving spouse, all of the inherited assets along with the surviving spouse’s own assets, will be subject to estate tax.

Let's Have a Conversation

Email or call me today at 949-387-8707 to talk about your estate plan and what you can do to protect your family.

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