You should understand your financial position relative to the federal estate tax exclusion when you are planning your estate. This tax can have a serious impact on your family’s future, because it carries a very significant rate. The top rate of the federal estate tax is 40 percent at the present time.
Fortunately, most people are exempt from the federal estate tax, because there is a relatively high credit or exclusion.
Your estate would be subject to the estate tax if its value exceeds the amount of the exclusion that is in place at the time of your death. During the current calendar year, the federal estate tax exclusion is $5.34 million. This is the amount that you can transfer tax-free.
Federal Estate Tax Return
When an estate is subject to the death tax, an estate tax return must be filed with the Internal Revenue Service. IRS Form 706 must be filed within nine months of the decedent’s passing. Taxes that are due must be paid within this nine-month period. but the IRS will grant an automatic six-month filing extension if more time is needed.
The same form must be filed to elect estate tax exclusion portability. In an estate planning context, the term portability describes the ability of a surviving spouse to use the exclusion that was due to his or her deceased spouse. Using the figure that is in place in 2014, the surviving spouse would have a total estate tax exclusion of $10.68 million if the right to portability was exercised.
State-Level Estate and Inheritance Taxes
There are states in the union that impose estate taxes on the state level. We have offices in North Carolina and Kentucky. We used to have a state level estate tax in North Carolina, but it has been abolished.
There is no state estate estate tax in Kentucky, but there is a state level inheritance tax.
An estate tax and an inheritance tax are two different things. An estate tax is levied on the entirety of the estate in question. An inheritance tax is levied on transfers to nonexempt beneficiaries.
In Kentucky, very close relatives like your spouse, your children and grandchildren, your siblings, and your parents would be exempt from the inheritance tax.
If you have Kentucky inheritance tax responsibility, an inheritance tax return must be filed within 18 months of the passing of the decedent.
Free Tax Planning Consultation
If you are exposed to the federal estate tax or the Kentucky inheritance tax, there are steps that you can take to reduce your exposure. We would be glad to assist if you would like to discuss tax efficiency strategies with a licensed attorney.
To set up an appointment, send us a message through this link: Free Estate Planning Consultation.
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