If you’ve lost a loved ones for whom you were the executor of their estate, then you might be familiar with the federal government’s estate tax. It’s supposed to be paid when a decedent’s assets get transferred to his or her heirs postmortem.
One of the first steps that must be taken to calculate the tax owed is for the executor of the estate to sum up the fair market values for the entirety of the decedent’s assets as of the day he or she died. If that’s not possible, then an executor of an estate can defer the valuing of assets to a different date.
The second in the two-step estate tax calculation process requires the estate’s executor to take an accounting of allowable estate tax deductions as well as credits. These should then be subtracted from the total value of the assets. A percentage-based tax rate will be assessed to whatever balance is left over. That amount is also known as an exemption.
While everyone American is subject to paying their portion of the federal estate tax, few actually end up doing so. Instead, many take advantage of the option to apply their exemption against their estate tax bill. As of 2017, it stood at $5.49 million. Provided that the value of the assets passed on to heirs doesn’t exceed that amount, heirs can receive them without having to pay federal estate taxes on them.
If you’re preparing to draft your will, remain abreast of federal estate tax obligations your heirs should expect to pay upon receiving your assets.
Source: The Balance, “What is the federal estate tax?,” Julie Garber, accessed June 15, 2018