The concept of taxes can be challenging and frustrating for the common man to understand. If you are in the middle of the problems of estate taxes, then nothing can be better than going through a proper article where you can clear out your doubts about estate tax valuations and other concepts.
What Are Estate Taxes?
On the death of a person, the assets that they leave behind can be subjected to estate taxes and inheritance taxes, depending upon the asset’s worth. However, in reality, most estates are too small to be charged with a federal estate tax. Many states do not even have an inheritance tax, but many states plus the District of Columbia still continues to tax estates. The federal estate taxes are collected only above a certain level of value. Even then, if you have a direct relationship with the deceased person, you only have to pay the tax.
Different Kinds of Estate Taxes
There can be both federal and state taxes that are assessed on the market value of the estates. The following are the kinds of taxes that you may come across.
Federal Estate Tax
The Internal Revenue Service (IRS) has stated in 2021 that if the estate valuation of combined gross assets exceeds 11.70 million dollars, you will have to file a federal estate tax return and pay the relevant estate taxes. If you have a combined estate value of 11 million dollars, you are likely to be charged a 40% tax rate.
State Estate Tax
If you are under a state estate tax system, then the exemptions are something that you need to be familiar with! The exemptions rate for state taxes is even less than those of the federal assessments.
State Inheritance Tax
While there may not be any federal inheritance tax, state taxes are imposed by Iowa, Kentucky, Nebraska, and others. The closer you are to the deceased person, the lesser the tax amount you will need to pay.
Minimize Tax Estate
To minimize taxes, keep the total amount of your estate below 11 million dollars. If it is coming up to more than 11 million, consider setting up trusts to transfer wealth and ease your burden.
There are also other ways to own a life insurance policy or use an intentionally defective granter trust.
The Bottom Line
Inheritance taxes can be complex and challenging. But we hope that now you know about the estate taxes, their valuation, the healthcare valuation, and other important concepts.