Quick solutions to common estate and gift tax issues.
Questions
Most estates (almost 99.9%) do not. Only if your taxable estate exceeds $12.06 million does the federal government levy estate tax upon your death (for deaths in 2022).
In 2022, the federal estate and gift tax rate is 40%.
Yes. Here are a few of the most well-known:
The federal gift and estate tax are essentially the same tax. The individual exemption amount applies to property you give away during your lifetime or bequeath to others when you die. In other words, for deaths in 2022, you may transfer up to $12.06 million in property tax-free, either while you’re alive or upon death. This exemption amount increases each year since it is inflation-indexed.
The majority of gifts are tax-free, which means they do not count against the personal exemption level. Gifts of more than $16,000 (in 2022) to any one individual or noncharitable organization are taxed. Making contributions of $16,000 or less, on the other hand, may result in significant estate tax savings if done over time.
Some gifts are free from gift/estate tax regardless of the amount. For example, if your spouse is a US citizen, you may give him or her an infinite amount of property tax-free. A noncitizen spouse may get up to $164,000 (for 2022 — this sum is also inflation-indexed). Any property donated to a tax-exempt organization is excluded from federal gift taxes, as is money spent directly for someone’s medical costs or school tuition.
Yes. Even if your estate is too small to be subject to federal estate tax, the state may still take a cut.
The state estate tax. Some states collect inheritance taxes from estates that aren’t large enough to owe federal taxes. In general, the tax rate is much lower than the federal estate tax rate.
In Oregon, for example, estates valued more than $1 million may be subject to state estate tax. Property bequeathed to a surviving spouse, on the other hand, is free from both state and federal estate taxes.
Discover which states have a state estate tax.
Inheritance taxation. A few jurisdictions levy a special tax, known as an inheritance tax, on the property of a dead individual. The rate is determined by who inherits the property; often, property passed to spouses and other close relatives is not taxed or is taxed at a low rate.
If your state charges estate or inheritance taxes, you usually don’t have much choice except to relocate. If you live in two states—winter here, summer there—your heirs may save money if you can establish your legal home in a state that does not levy these taxes.