Federal estate tax applies to the transfer of assets from the decedent’s estate to the heirs. However, the federal estate tax allows a personal exemption of $5.45 million in 2016, but the amount of the personal exemption will be reduced by the amount of gifts made during the heir’s lifetime. The federal gift tax limits the value of assets that can be transferred to each person without a tax, other than to a spouse, to $14,000 or $28,000 jointly. Each gift amount will be deducted from the personal exemption. Gifts to tax-exempt charitable organizations are excluded from the taxable estate.
All assets owned by the decedent may be taxable including property held in joint tenancy, in living trusts, IRAs, and life insurance if the insurance was owned and controlled by the decedent. The assets are to be valued at current market value, and not the purchase price. However, the marital deduction exempts all assets passed to a surviving spouse from being taxed. The marital deduction does not apply to noncitizen spouses, but the personal exemption does apply to assets left to noncitizen spouses.
The marital deduction is the total of all assets left to the surviving spouse. The taxable estate is determined by subtracting the amount of the marital deduction along with any gifts made prior to death. The marital deduction can be affected by many factors, and our office can provide a detailed explanation of each factor.
An estate can be worth more than is anticipated if real estate has a greater market value than it is thought to have. Art and antiques may also have a greater value than expected. These are considerations for the executor to keep in mind.
There are more aspects of the federal estate tax law than can be covered in this article. We will be pleased to discuss your specific situation and, if estate taxes are a concern, then our law office can show you how to minimize and even how to legally avoid federal estate taxes.
Disclaimer: This article is intended to provide a general summary of laws in the State of California and should not be construed as a legal opinion nor a complete legal analysis of the subject matter. Noelle Minto is an attorney at NM Law, APC in Tustin, California, a law firm specializing in Trusts & Estates and Business Transactions.
