Understanding how to calculate estate tax is a vital part of building a sound estate plan. While Missouri does not impose an estate or inheritance tax, residents must still navigate federal estate tax laws, which can significantly impact the value of assets passed to heirs.
This guide provides a clear, step-by-step breakdown of how estate taxes are calculated, what deductions are available, and how recent updates to the lifetime exclusion affect your estate’s potential tax liability.
1. What is the Federal Estate Tax?
The estate tax, sometimes called the “death tax,” is a federal tax on the transfer of a deceased person’s assets to their heirs. It is assessed on the gross value of the estate prior to distribution to beneficiaries.
2. Step One: Determine the Gross Estate
Your gross estate includes everything owned at the time of death, calculated at fair market value, not the original purchase price. This typically includes:
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Real estate holdings
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Bank accounts
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Investments and retirement accounts
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Business interests
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Personal property (jewelry, vehicles, artwork)
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Life insurance proceeds (in some cases)
3. Step Two: Deduct Eligible Expenses
After calculating the gross estate, deductible expenses help reduce the estate’s taxable value. Key deductions include:
a. Debts and Liabilities
Mortgage balances, loans, credit card debt, and final medical bills can be deducted.
b. Estate Administration Costs
Legal fees, accountant costs, probate expenses, and executor compensation.
c. Marital Deduction
Assets passing to a surviving spouse are exempt from estate tax (unlimited marital deduction).
d. Charitable Contributions
Bequests made to qualified charities are 100% deductible from the estate.
✅ Result: Subtracting all allowable deductions from the gross estate gives you the taxable estate.
4. Step Three: Apply the Lifetime Exclusion
The lifetime federal estate and gift tax exclusion determines how much of your taxable estate is exempt from federal estate tax.
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2021 Exclusion Amounts:
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$11.7 million per individual
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$23.4 million for married couples
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💡 Note: These figures are adjusted for inflation each year and could be reduced in the future by federal legislation.
If your taxable estate is less than the lifetime exclusion, no federal estate tax is owed.
5. Step Four: Calculate the Tax Owed
If the estate’s value exceeds the lifetime exclusion, the amount over the threshold is taxed.
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Federal Estate Tax Rate: Up to 40%
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Applies only to the portion exceeding the exclusion
6. Step Five: Adjust for Lifetime Gifts
If you made taxable gifts during your lifetime (i.e., gifts over the annual exclusion, which was $15,000 per person in 2021), those amounts are subtracted from your lifetime exclusion.
📌 Example:
If you gave $1 million in taxable gifts during your lifetime, your exclusion at death would be $10.7 million instead of $11.7 million.
7. What About Missouri State Estate Tax?
Good news for residents of the Show-Me State:
Missouri does not impose an estate or inheritance tax.
This means Missouri residents only need to comply with federal estate tax laws when planning their estates.
Conclusion
Calculating estate tax isn’t a one-size-fits-all process—it requires detailed knowledge of federal tax thresholds, allowable deductions, and how lifetime gifts may impact your final estate.
While Missouri residents are exempt from state-level estate taxes, federal obligations can still be significant, particularly for high-net-worth individuals. To ensure full compliance and optimized asset preservation, consider working with an experienced estate planning attorney who can tailor a plan to your specific financial situation.
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#EstatePlanning #EstateTaxGuide #FederalEstateTax #MissouriEstateLaw #EstateAttorney #ChadMannLaw #WealthTransfer #InheritancePlanning #EstateDeductions #LifetimeExclusion
