Estate Taxes

Let’s talk about estate taxes and specifically the estate tax exemption. So this is money that you can pass on to your heirs without having to pay estate taxes. So the Tax Payer Relief Act of 1997, the level for this estate tax exemption was $600K. And then it increased to about $1M in 2002, $2M in 2008 and then now in 2022, that’s just over $12M per individual. So if there’s a married couple, now you’re talking about $24M that could be passed and not have to pay estate taxes. So there’s not as many heirs paying estate taxes today on their inheritance as there were 20, 30 years ago. There’s still taxes though on certain monies that are inherited that it’s important to be aware of. So if you have traditional IRAs or 401Ks, then that money is left taxable to your beneficiary, a child, grandchild, etc. And they’ve changed some of the rules of how you used to be able then stretch that money over their lifetime. But now they’ve limited you to a 10 year window and there’s certain rules that you have to follow that require distributions and etc during that 10 year timeframe. But again, when a child or grandchild is receiving an IRA, they’re going to be paying taxes on that money. Another scenario would be a deferred non-qualified annuity. So this is after-tax money that you put into an annuity. And that money has been growing over time and you pass away and leave that money. Then the interest earnings that you didn’t pay tax on during your lifetime, is going to be left as taxable to children and grandchildren. Estate planning, it was typically prior to 2011, that Attorneys were maybe drawing up what they call A,B Trust. Where a married couple might have two different Trusts involved. Today we see more common, the Attorneys that they’re drawing more of like a family Trust where a married couple would have that together in one Trust. Again, we’re not Estate Planning Attorneys. You’d want to talk to the legal professionals about how to set up the appropriate Trust. But it is one that’s changed over the past 15 plus years. Now there are tax-free assets that you might inherit. So that could be, examples of that would be life insurance or Roth IRAs, different savings accounts or maybe the owner’s primary residence. There also could be different stocks that had a step up in basis upon their passing. So there are different assets that you could inherit and not have to pay any taxes. So there’s a lot of different areas when it comes to estate planning and planning. So that’s where we encourage you to give us a call and sit down for a no cost, no obligation second opinion.