In the event of a person’s passing, their estate and inheritances may be subject to taxation in theory. However, in practice, most estates are too small to be subject to federal estate tax. Under current laws, only estates valued at $11.58 million or more are required to pay taxes. Additionally, many states do not impose estate or inheritance taxes. If your estate is subject to taxes, the responsibility of preparing, filing, and signing the estate tax return falls on someone, whether it be a beneficiary, personal representative, or successor trustee, depending on various factors related to probate.
Understanding Probate and Taxation
If your estate must go through probate, the executor or personal representative will be responsible for using estate funds to pay taxes. They are tasked with preparing and filing all necessary tax returns for state and federal tax authorities.
Estate Taxes
Estate taxes are based on the market value of the estate, not the original purchase price of assets. This means that any appreciation in asset value is subject to tax, although a drop in value can result in tax savings. Assets passing to a surviving spouse are not included in the total amount subject to estate tax, thanks to the unlimited marital deduction. However, beneficiaries may face estate taxes if the estate exceeds the limit after the surviving spouse’s passing.
Federal Estate Taxes and Probate
The Internal Revenue Service requires estates with gross assets exceeding $11.58 million to pay federal estate taxes.
State Estate Taxes
States with estate taxes typically have lower exemptions than federal estate taxes, with some as low as $1 million. Estate taxes are levied by the state where the decedent resided at the time of death.
State Inheritance Taxes
While there is no federal inheritance tax, certain states still impose taxes on assets inherited from deceased individuals. The taxation and rates depend on the value of the inheritance, the relationship to the deceased, and the state’s laws.
understanding the tax implications during probate is crucial. Most assets are not taxable during this process, but it is important to report any cash received from the deceased. Hiring a knowledgeable lawyer can help navigate the complexities of probate and ensure a successful outcome.
