If you’re thinking about planning ahead for your financial future in your own life and what happens to your assets after you pass away, you may be curious about the potential impact of the estate tax.
Understanding the Estate Tax
The U.S. estate tax is what is known as a transfer tax, similar to capital gains taxes or income taxes. It is triggered when a person receives assets or wealth that they did not have before, and this may apply when someone’s receives assets from a person who passed away.
The estate tax only applies to those estates that have more assets inside than the cap set by the IRS, and this is a relatively high cap and most American families will not trigger this cap. For example, in 2023, the cap is $25.84 million for married couples and $12.92 million for individuals. The way this works is that if you have an estate valued at $12.92 million, you will not pay taxes on that money. However, if your estate is above that amount, you will pay no taxes on the first $12.92 million, but taxes on the remainder.
One of the most important things to recognize about the estate tax is that the estate tax is paid out by the owner of the assets not the recipients. Your estate itself, for example, would pay any taxes owed to the IRS rather than your beneficiary directly. However, there may be other tax impacts for your loved ones depending on the type of assets you transfer.
Determining Your Estate Tax Liability
If you’re not sure whether or not your estate will incur any state or federal taxes, it is wise to do more research on your situation and also to set up a meeting with an estate planning attorney in your area. Talk to a Plymouth, MI lawyer about your estate now.