Estate taxes are a crucial aspect of financial planning and wealth management, yet they remain one of the most misunderstood areas of taxation. For individuals and families seeking to preserve their wealth and ensure a smooth transfer of assets to future generations, understanding estate taxes is essential.
Marcus, Fairall, Bristol + Co. is El Paso’s leading full-service accounting firm that can help you navigate estate taxes. If you’re ready to preserve your wealth for the next generation, we can provide a free consultation. Call (915) 775-1040 to schedule a meeting today.
What Are Estate Taxes?
Estate taxes are levied on the transfer of assets from a deceased person to their heirs or beneficiaries. Often referred to as the “death tax,” estate taxes are calculated based on the total value of the deceased’s estate, which includes:
- Real estate
- Cash and savings
- Investments (stocks, bonds, mutual funds)
- Business interests
- Personal property (art, jewelry, vehicles)
- Life insurance proceeds (in certain cases)
The tax is typically applied at the federal level, though some states impose additional estate or inheritance taxes. Understanding the scope and application of these taxes with the help of a trusted El Paso accounting firm is key to minimizing liabilities and preserving wealth.
Understanding Federal Estate Taxes
At the federal level, the estate tax only applies if the value of the estate exceeds a certain threshold, known as the estate tax exemption. For example, in 2024, the exemption is set at $13.92 million per individual (or $27.84 million for married couples using portability). Estates valued below this threshold are not subject to federal estate taxes.
For estates exceeding the exemption, the federal estate tax rate is progressive, with rates ranging from 18% to 40% on the amount above the exemption.
Navigating Estate and Inheritance Taxes by State
In addition to the federal estate tax, several states impose their own estate taxes, with exemption thresholds that may be significantly lower. Some states also levy inheritance taxes, which are paid by the beneficiaries rather than the estate itself. These taxes vary widely by jurisdiction and can significantly impact the overall tax liability, which is why working with an accounting firm is important.
Strategies for Successful Estate Tax Planning
Understand Asset Valuation
Accurately valuing your estate is the first step in determining potential tax liability. This may include conducting appraisals, accounting for debts and liabilities, and including any taxable gifts made during your lifetime.
Leverage the Annual Gift Tax Exclusion
The annual gift tax exclusion allows individuals to give up to $17,000 per recipient in 2024 without affecting their lifetime estate tax exemption. Strategic gifting can reduce the size of your taxable estate over time.
Utilize Trusts for Tax Efficiency
Trusts are powerful tools for estate tax planning. Common types include revocable living trusts, irrevocable life insurance trusts (ILITs), and grantor-retained annuity trusts (GRATs).
Portability for Married Couples
Portability allows the unused portion of a deceased spouse’s estate tax exemption to be transferred to the surviving spouse. This can effectively double the exemption for married couples, provided the appropriate forms are filed.
Charitable Contributions
Donations to qualified charities reduce the taxable estate. Charitable remainder trusts (CRTs) and donor-advised funds (DAFs) are popular vehicles for incorporating philanthropy into estate planning.
Get Your Estate Taxes Done Right with MFB + Co.!
Be proactive in the new year with the help of Marcus, Fairall, Bristol + Co., a leading accounting firm in El Paso. We offer a variety of tax services that can help you protect your assets. Call (915) 775-1040 to get started today.