Not too long ago, there existed the risk that much of your loved one's estate would get eaten up by the federal "death tax." However, large exemptions currently exist that protect the vast majority of estates from paying federal estate taxes. Let's take a closer look at this exemption to determine how much -- if anything -- your estate may need to pay after you die.
The current federal estate tax, or "death tax," exemption is set at $5.49 million. That means, if your estate is less than $5.49 million, the entirety of your estate will be exempt from federal estate taxes. Most estates will therefore be exempt from the federal estate tax.
However, for households with estate values of several million, it could be appropriate to consider estate tax planning strategies. Depending on the economy, your investments and the value of your real estate property, it's possible that you underestimated the value of your estate. It's also possible that the value of your estate could rise and fall as a result of market forces. Given these variables, a $4 million estate could rise to $5 million in no time. Once the estate tax triggers, rates of up to 40 percent could apply to the excess amount above $5.49 million.
If you're one of the few who has a large estate that could exceed the threshold, don't worry just yet. Many estate planning solutions are available to help you lower the estate taxes that could apply to your estate one day. Legal foresight and planning ahead will be key to your success with these plans. This is why estate planning lawyers often say that the best time to plan your estate is yesterday.
Source: NerdWallet, "Find Out If You'll Owe Taxes on an Inheritance," Tina Orem, accessed Dec. 08, 2017