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What determines your “Taxable Estate” after you pass away?

If you are thinking about creating your will and perhaps other documents in an estate plan, one of your questions will likely be about taxes and how they will affect the assets you want to leave to your heirs.

For example, what constitutes a taxable estate? What constitutes an exemption, and will your estate qualify?

About the Estate Tax

When you die, the federal estate tax applies to the property transferred after your death. However, payment to the Internal Revenue Service is only required if the total value of your estate exceeds a certain threshold known as the Federal Estate Tax Exemption Amount.

How Estate Tax is calculated

At the time of your death, an accounting of your assets takes place to assign fair market value to everything you own or have an interest in. The end result is your Gross Estate. Included would be items such as stocks and bonds, notes and cash, real estate, life insurance, annuities and jointly owned property, among others.

Your taxable estate

Once the numbers for your Gross Estate are ready, the next step is to apply certain deductions, which will then produce your Taxable Estate. Those allowable include the marital deduction, whereby your estate can pass to your spouse, tax-free. Other deductions from the Gross Estate include the expenses for your funeral, certain administrative expenses, certain taxes, mortgages and other debts as well as charitable bequests. Your executor must file the estate tax return within nine months of your death.

The Federal Tax Exemption

If the value of your Taxable Estate exceeds the Federal Estate Exemption Amount, estate tax on everything over the exemption amount will be due. The exemption threshold for 2019 is $11.4 million for a single exclusion amount or $22.8 million for a married exclusion amount. As you can see, the threshold is very high, affecting only the wealthy. Middle-class families will not have to pay an estate tax.

Looking ahead

Once you have all the facts about your Taxable Estate, you can work with your attorney to develop your will and other estate planning documents with terms that ensure the smooth transfer of assets to your beneficiaries and set your mind at ease.

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