When planning your estate, understanding the implications of estate taxes is crucial. These taxes can significantly affect the assets you leave behind for your heirs. This article delves into the workings of estate tax, taking into account both Missouri and federal laws.
1. Understanding the Estate Tax
Estate tax, often referred to as the 'death tax,' is a tax on the transfer of a deceased person's assets (the estate) to the heirs. The tax is calculated based on the net value of the estate before it's distributed to the heirs.
2. Federal Estate Tax
As of 2021, the federal estate tax is applicable to estates valued over $11.7 million for individuals and $23.4 million for married couples. This means that if your estate's value is less than these thresholds, it won't be subject to federal estate tax. The tax rate can go up to 40% for estate values above these limits.
The estate tax threshold is also known as the "lifetime exclusion amount" because it applies to the total amount of gifts you give during your life and your estate's value at death. Any amount of the lifetime exclusion used during life to cover gift taxes reduces the available exclusion amount for the estate tax at death.
3. Missouri Estate Tax
Missouri does not impose its own estate tax or inheritance tax. Thus, Missouri residents are only concerned with federal estate tax.
4. Reducing Estate Tax Liability
Several strategies can be used to potentially minimize the estate tax burden:
a. Gifts during Lifetime: As of 2021, you can give up to $15,000 per person per year without incurring federal gift tax or using your lifetime exclusion. This can be a useful way to gradually reduce the size of your estate.
b. Irrevocable Trusts: These can remove assets from your estate, reducing its value for estate tax purposes. However, you must relinquish control over these assets.
c. Portability: A surviving spouse can add any unused exclusion of the deceased spouse to their own lifetime exclusion, a concept known as portability. This must be claimed by filing an estate tax return upon the first spouse's death, even if no tax is due.
5. The Role of an Estate Planning Attorney
An experienced estate planning attorney can guide you through the complexities of estate tax laws and devise strategies that best suit your circumstances. They can help ensure that your estate plan optimizes tax benefits while fulfilling your wishes for your assets' distribution.
Understanding estate tax, both federal and those specific to your state, is vital when creating an estate plan. In the absence of estate tax at the state level in Missouri, residents should focus on federal laws and strategies to minimize this tax. Consulting with a qualified estate planning attorney can be invaluable in navigating these waters.