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An overview of estate tax

A federal estate tax is applied to the assets of a deceased person. However, if the assets transfer to the spouse, the estate tax is not applied. Furthermore, there is an estate tax exemption of $5.45 million for 2016, so on a federal level, only people whose assets are worth more than that will be affected by tax. While Georgia does not have an estate tax, people preparing an estate plan might wonder how the federal estate tax will affect them.

Here is one example of how estate tax works in practice. An entrepreneur might have an estate worth $12 million. On the entrepreneur's death, the estate might pass to his wife, and she will not have to pay estate tax. The spouse might spend around $2 million before her own death, and if their children are named as beneficiaries, the assets worth $10 million will pass to them. With an estate tax for federal and state of up to 50 percent, if there are two children, each may only receive around $2.7 million.

However, sometimes, the estate tax is lower than the top rate. One reason is that taxes are only calculated on the amount above the exclusion and not on the whole value of the estate. Furthermore, there are several ways to protect an estate from this type of tax.

A person who has a large estate and who is concerned about estate tax might want to talk to an attorney about ways to avoid or reduce that tax through estate planning. One option might be certain types of trusts. Another option might be to gift the money to beneficiaries over a series of years. An attorney may be able to advise the best courses of action given an individual's circumstances.

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