A lot of people come to our offices in Port St. Lucie and Vero Beach, Florida because they want to know if they need to worry about estate taxes. Even though the question of paying taxes on your estate is a significant issue, it’s much less significant today than it has been in recent years. This is primarily because some significant changes to the federal estate tax law have made the issue something that doesn’t apply to most estates.
Nevertheless, there are some people that do need to worry about estate taxes. In today’s blog post in our ongoing series on basic questions about estate planning, we’re going to ask if you need to worry about estate taxes, and why.
Do I need to worry about estate taxes?
Probably not. The federal estate tax is a tax that applies to the property left behind by anyone who dies in the United States, regardless of the state in which you live. Whether you die in New York, Florida, or anywhere else, the amount that your estate will have to pay is the same.
However, even though the estate tax is a federal tax, it also allows for significant exemptions. In 2014, the individual estate tax exemption amount is $5.34 million. So, should you die in 2014, the federal estate tax will not apply to your estate unless it exceeds the $5.34 million individual exemption amount.
Do couples need to worry about estate taxes?
If the individual exemption amount is $5.34 million, what about couples who own more than that? If, for example, you are married and have assets totaling $8 million, does that mean that, after you and your spouse die, your estate will have to pay estate taxes? Not likely. This is because the federal estate tax law effectively allows couples to combine their individual exemptions through a strategy called portability. With portability, the surviving spouse of a deceased spouse can use the unused portion of the deceased spouse’s exemption amount when calculating his or her own estate tax bill. Though this sounds rather complicated, it essentially gives married couples a combined exemption amount of nearly $10.7 million.
What can I do if my estate is worth more than the exemption amount?
If you have an estate that exceeds either the individual or combined exemption amounts, there are strategies you can use to reduce the taxes your estate will have to pay. In some situations you can use these tax mitigation strategies to completely avoid having to pay estate taxes at all. However, you will need to speak to us about what kind of strategies are appropriate for you, and should make an appointment to come talk to us as soon as possible.