Federal Estate Tax
We have an estate tax on the federal level. This tax can have a significant impact on your financial legacy if you have been able to accumulate a good bit of wealth.
There is a federal estate tax credit or exclusion. This is the amount that you can transfer in a tax-free manner. During the current calendar year, the exact amount of the federal estate tax exclusion is $5.34 million. The top rate of the tax is 40 percent.
We should point out the fact that you do not have to use any portion of your $5.34 million exclusion to leave a tax-free bequest to your spouse. There is an unlimited marital deduction that allows you to transfer any amount of property to your spouse free of taxation.
An estate tax is levied on the entire taxable portion of an estate before the assets are distributed to the heirs.
State-Level Estate Taxes
There are a number of states in the union that have state-level estate taxes. The state-level exclusions are typically lower than the federal exclusion. As a result, people in these states could potentially be exempt from the federal tax but exposed to a state-level estate tax.
We practice in the state of North Dakota. There is no state-level estate tax in North Dakota. However, if you own valuable property in a state that does have a state-level estate tax, you could face exposure.
Many people think that an estate tax and an inheritance tax are the same thing. In fact, these are two different forms of taxation.
An inheritance tax is imposed on each asset transfer to nonexempt inheritors. It is not levied on the entirety of the taxable portion of the estate.
Fortunately, there is no inheritance tax on the federal level. However, there are a handful of states in the union that have state-level inheritance taxes.
There is no state level inheritance tax in North Dakota. For your information, New Jersey, Maryland, Pennsylvania, Kentucky, Nebraska, Iowa, and Indiana are the states that have state-level inheritance taxes.
New Jersey and Maryland are the only two states in the union that have a state-level estate tax and a state-level inheritance tax.
Schedule a Free Tax Efficiency Consultation
If you are exposed to taxation on any level, there are legal steps that you can take to ease the burden. We would be glad to assist you if you would like to explore tax efficiency strategies.
To request a free consultation, send us a message through this page: Grand Forks ND Estate Planning Attorney.