Top Four Estate Tax Questions

In this post we would like to look at four of the most commonly asked questions about estate taxes.

1.) Who has to pay the federal estate tax?

The fact that the estate tax is selectively imposed is something that many people find to be unfair. But indeed, some families are exposed to the tax and some are not. It all boils down to your level of financial success.

The federal estate tax exclusion sits at $5.25 million in 2013. Any portion of your assets that may exceed this amount would be subject to the estate tax.

If the value of your estate does not exceed $5.25 million the entirety of your estate would be excluded from the estate tax.

You should recognize the fact that everything that is in your personal possession would count when you are determining your position in relation to the exclusion. This of course includes the value of your home, jewelry, collectibles, etc.

2.) Can I give it all away before I die?

You can certainly give gifts while you are living, but there are tax consequences if the amount of these gifts exceeds the $5.25 million exclusion. There is a gift tax as well is an estate tax, and the exclusion is unified. It includes the gifts that you give that are taxable along with the bequests that you pass along to your heirs.

In addition to this $5.25 million unified exclusion there is also a $14,000 per year, per individual gift tax exclusion. You can give gifts valued at up to $14,000 per year to any number of recipients free of the gift tax without using any of your unified exclusion.

Another gift tax exclusion allows you to pay medical expenses for others as a gift free of the gift tax, and these gifts don’t count against your lifetime exclusion.

There is also a tuition exemption. You can pay school tuition for students as a gift tax-free. These gifts must be made directly to the institutions, and the exemption only extends to tuition. Books, fees, and living expenses don’t fall under this exemption.

3.) If I inherit money from my spouse, will I be forced to pay the estate tax?

This is one question that has an answer that most people would like to hear. No, you don’t have to pay the estate tax on the inheritance that you receive from your spouse.

In addition, the gift tax is not applicable on asset transfers between spouses while both parties are living.

4.) What about the state of Iowa, as a resident do I have to pay a state-level estate tax?

Iowa does not have a state estate tax to contend with, but there is an inheritance tax in the state of Iowa. This tax is levied on the inheritances that are received by each of the nonexempt inheritors.

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Ryan M. DenmanandDennis D. Duffy

Duffy Law Office, PLLC