Estate Tax
Candlefocus EditorThough the estate tax may appear daunting, there are several ways to reduce or even escape the estate tax. The estate tax is only applicable to taxable estates, meaning those with an estate that exceeds the threshold amounts. Any assets that are transferred to a spouse or other specified relatives are exempt from the taxable estate and are not subject to the estate tax.
Property that is titled in joint tenancy with a designated survivor does not become part of the taxable estate either, as the decedent’s portion would transfer automatically to the designated survivor upon the decedent’s death. This arrangement is especially beneficial for married couples with vast amounts of assets, as the non-taxable survivor’s portion will continue to accrue without the burden of taxation.
Finally, any estate that is distributed to a beneficiary is subject to the estate tax, but the recipient of the asset may be subject to inheritance tax. An inheritance tax is similar to an estate tax, but it is only imposed once an asset is received by a beneficiary. This can often be confusing, as the terminology can be used interchangeably, but the rules differ.
Overall, the estate tax is an important financial levy that has to be taken into account when considering the distribution of one’s assets upon death. While it can often be intimidating, it is important to understand the exemptions, guidelines, and rules that are associated with the estate tax so that one’s beneficiaries receive the assets they are entitled to while minimizing any associated financial burden.