I'm going to get rid of a lot of industry jargon and simplify things about this topic. If your net worth is high enough to be subject to federal estate taxes, here's a simple breakdown of what happens:
Estate Value Assessment: When you pass away, the government looks at how much your property and assets (like cash, houses, and investments) are worth.
Deducting Expenses: They subtract any debts you owe and certain other expenses from this total value.
Exemption Check: Everyone gets a certain amount that's exempt from taxes ($12.92 million in 2023, for example). If your estate's value is less than this, there are no federal estate taxes.
Calculating Tax: If your estate is worth more than the exemption, the part over that amount is taxed. The tax rate gets higher as the amount over the exemption increases, up to 40%.
Filing Tax Forms: The people handling your estate have to fill out a tax form and pay the taxes within nine months of your death.
Paying the Tax: This tax needs to be paid before your property and money can be given to your family or friends.
State Taxes: Some states might charge their own taxes on top of the federal ones.
Planning Ahead: You can plan things like gifts while you're alive or set up special accounts (trusts) to lower the taxes your estate might have to pay.
In short, if you have a lot of money or property when you pass away, a part of it might go to taxes before the rest goes to your family or friends. It's a good idea to plan ahead with a professional to help reduce these taxes.
Again, we are not attorneys or CPAs and it's always recommended that you consult your own. We can save your heirs heartaches and help you pass your wealth to your heirs efficiently using various insurance strategies. Email us at contact@peachinsurance.net
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