There are many different terms that you might hear in connection to your estate planning process and the estate tax is one of them. The estate tax in the US refers to a tax that is placed on your ability to transfer property to other people when you pass away.
Not all inherited assets are subject to the estate tax in the United States and, in general, the estate tax only impacts the wealthiest households across the country. Both the gift tax and the estate tax are treated as a single tax system in the United States with tax rates in unified limits that are not well understood by most people. It's important to recognize that there is another term, the lifetime exemption amount, that you should consider in your planning, too.
Americans are allowed to exempt a particular number of assets form being categorized as inside their taxable estate. This is the lifetime exemption amount and this amount can adjust and change according to politics. In 2020, for example, the lifetime exemption for the estate tax is set at $11.58 million. This is an exemption based on each individual person, meaning that it would be doubled for a married couple. The vast majority of Americans do not have assets valued high enough to be affected by the estate tax.
It is estimated that fewer than 0.1% of all estates in the country are taxable, meaning that most people's estates are not subject to federal estate taxes. The lifetime exemption also includes taxable gifts that are made during the course of your life. You do not have to pay any gift tax or estate tax until after your death or unless you have used up your entire lifetime exemption.
Even if you might not be subject to the individual estate tax at the federal level, it's important to have estate planning strategies in place to protect you in other ways. Schedule a consultation with a Michigan estate planning attorney today to discuss all the key components of your estate plan.