Estate Taxes Explained

Estate taxes and estate planning are crucial aspects of managing your wealth which can help ensure a smooth transition of your assets to family and loved ones. Estate planning involves the creation of a comprehensive plan for managing and distributing your assets after your death. Having a plan with consideration for potential tax liabilities can save significant amounts of money and reduce the stress and confusion for loved ones during an already difficult time.

So, What Are Estate Taxes?

Estate taxes, sometimes referred to as "death taxes," are levied on the total value of a deceased person's estate before the assets are distributed to the beneficiaries. These taxes can be imposed at both the federal and state levels, depending on where you live. In the United States, the federal estate tax applies to estates exceeding a certain threshold, which is adjusted periodically for inflation. The current estate tax exemption limit for 2025 is $13.99 million per individual. This means that any assets transferred after an individual’s death below this amount will not be subject to estate tax if they have not used their exemption during their lifetime. The IRS assesses a tax at graduated rates from 18% up to 40% for assets at death greater than the $13.99 million per individual threshold. However, on January 1, 2026, the estate and gift tax lifetime exemption will revert to the pre-2018 numbers, unless Congress takes specific action. Absent a new action, the exemption will reset to the 2011 rate of $5 million per person, with adjustments for inflation.

Some states also impose their own additional state estate taxes, with varying exemption limits and rates. States such as Hawaii, Oregon, Washington, and New York have their own state estate taxes that can affect estates not subject to federal taxes. Be sure to check with your state to see how they handle this issue.

Given the complexity of estate taxes and the intricacies of estate planning, seeking professional advice is essential. Estate planning attorneys, financial advisors, and tax professionals can provide valuable insights and help create a plan tailored to your specific circumstances. They can ensure that all legal documents are properly drafted, advise on tax-saving strategies, and help navigate the ever-changing tax laws.

Estate taxes and estate planning are integral components of managing one's legacy and ensuring that assets are transferred according to your wishes. By understanding the implications of estate taxes and employing effective estate planning strategies, you can minimize tax burdens and provide for your loved ones in a meaningful way. Taking the time to plan and seek professional guidance can offer peace of mind and financial security for both you and your heirs.