You pay many different types of taxes throughout your life. There is income tax that must be paid, and you pay property tax, capital gains tax, sales tax, and numerous different so-called “hidden” taxes.
Since you paid all of these taxes throughout your life, you may assume that you can die tax-free. Unfortunately, the powers that be do not agree, because there is a federal estate tax in place.
Most people are not exposed to the federal estate tax, because there is a relatively large credit or exclusion. This is the amount that you can transfer to people other than your spouse tax-free.
The estate tax does not apply to transfers between spouses, because there is an unlimited marital deduction.
In 2014, the estate tax exclusion is $5.34 million. Next year the figure will be higher after an inflation adjustment has been applied.
A number of states in the union have state-level estate taxes. We practice law in the state of North Dakota, and there is no state estate tax in our state. However, if you own valuable property in a state that does have an estate tax, you could face exposure to that state’s death tax.
Estate Tax Return
When the estate tax is applicable, an estate tax return must be filed. The specific form is Internal Revenue Service Form 706.
This form must be filed within nine months of the decedent’s passing. However, the IRS will grant an automatic six-month extension if more time is needed.
Estate Tax Exclusion Portability
The estate tax exclusion is portable between spouses. This means that a surviving spouse can use the exclusion that was allotted to his or her deceased spouse.
Using the $5.34 million per person exclusion that is in place for 2014, portability would allow a surviving spouse to have a total exclusion of $10.68 million.
However, portability is not automatically given by the Internal Revenue Service. You must file Form 706 to take advantage of the portability option.
The time frame is the same. To opt for portability, the form must be filed within nine months of the decedent’s passing, even if there was no estate tax due at that time.
Learn More About the Estate Tax
If you have questions about the federal estate tax, we have a valuable resource that you can access through this website.
Our firm has prepared a series of in-depth special reports, and one of these reports focuses on the federal estate tax. To get your copy of the report, which is being offered free of charge, visit this page: Estate Tax Report.
Estate tax efficiency can be an important part of the estate planning equation if you are a high net worth individual. There are a number of different strategies that can be implemented to preserve your wealth.
To explore your options, send us a message through this page to set up a free consultation: Grand Forks ND Estate Planning Attorneys.