In the event of a person’s passing, their estate and inheritances may be subject to taxation in theory. However, in reality, most estates are too small to be subject to federal estate tax. According to 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, someone must prepare, file, and sign the estate tax return. The responsibility for paying the tax bill falls on the 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 is responsible for using estate funds to pay taxes. They are also responsible for preparing and filing all necessary tax returns with state taxing authorities and the IRS.
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, but it also allows for tax savings if asset values decrease. Assets passing to a surviving spouse are not included in the total estate value calculation and are not subject to estate tax due to the unlimited marital deduction. However, beneficiaries may be subject to estate taxes if the estate exceeds the limit after the surviving spouse’s passing.
Federal Estate Taxes and Probate
The IRS 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 the federal government, 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, some states still impose taxes on assets inherited from deceased individuals. The taxation rate and threshold depend on the value of the inheritance, the relationship to the deceased, and state laws.
understanding the tax implications of probate is crucial. Most assets are not taxable during this process, but it is important to report any cash or income received from the estate. Hiring a knowledgeable lawyer to guide you through the probate process can ensure a successful outcome.
