The Federal Estate Tax: Exemptions & Rate
Federal estate tax laws were updated in 2017 as part of the Tax Cuts and Jobs Act, which provides for an exemption of $11.58 million (2020). This means that each individual can transfer up to $11.58 million in assets free of federal estate taxes. The federal estate tax exemption, also referred to as an “applicable exclusion amount,” is adjusted annually for inflation.
The taxable value of the estate is calculated by adding up all the assets owned by the individual and subtracting from that total any of his or her liabilities. Estate tax planning in Nevada considers additional deductions that can be taken for qualified charitable deductions as well as administrative and legal costs involved in settling the deceased’s estate.
The tax rate for estates exceeding the exemption amount is 40%. The rate is applied to the taxable estate value that is in excess of the exemption amount.
The Federal Estate Tax: Understanding Portability
The American Taxpayer Relief Act of 2012 (ATRA 2012), made “permanent” a new concept in estate planning for married couples, ostensibly rendering traditional estate tax planning unnecessary. This concept, called “portability,” means that a surviving spouse can essentially inherit the estate tax exemption of the deceased spouse without use of “A-B Trust” planning. As with most tax laws, however, the devil is in the details. For example, unless the surviving spouse files a timely (within nine months of death) Form 709 Estate Tax Return and complies with other requirements, the portability may be unavailable. However, an automatic six month extension of time to file the return is available to all estates, including those filing solely to elect portability, by filing Form 4768 on or before the due date of the estate tax return.
In addition, married couples will not be able to use the GSTT exemptions of both spouses if they elect to use “portability” as the means to secure their respective estate tax exemptions. Furthermore, reliance on “portability” in the context of blended families may result in unintentional disinheritances and other unpleasant consequences.
A number of states impose a separate estate or inheritance taxes. While the rates are typically much lower than the federal rate of 40%, the exemption amounts are smaller as well.
Our law firm uses estate tax planning specifically for Nevada and will address your concerns about how to adapt your plan in light of federal tax laws like ATRA 2012, and we encourage you to schedule a consultation.
Special Planning for High Net Worth Individuals
Individuals and families with significant net worth might still have taxable estates even if they take full advantage of their respective exemptions. For these individuals, there are a variety of advanced planning techniques that can be crafted to help reduce the estate tax burden. These strategies include gifting plans, life insurance trusts, personal residence trusts, and grantor retained annuity trusts.
Same Sex Couple Estate Planning Attorney
The Supreme Court’s ruling on the Defense of Marriage Act (DOMA) paves the way for same-sex couples married under Nevada state law to take advantage of all the federal privileges afforded to opposite-sex couples, including those related to federal gift and estate taxes.
Tax planning strategies are inherently complex, but an experienced estate planning attorney with knowledge of Las Vegas and Nevada’s estate and gift tax laws can help you establish a comprehensive plan that will allow you pass on as much of your hard-earned assets as possible to your loved ones and beneficiaries.