Estate Planning and Tax Implications —A Comprehensive Guide 


You have planned your estate and are certain of its estate tax efficiency. To prevent unanticipated effects, it is critical to evaluate the income tax implications of each choice throughout the planning process with the help of a tax consultant in Houston, TX

After all, a person’s death and the gifts they make throughout their lifetime affect many taxpayers, including the deceased, their surviving spouse, estate, beneficiaries, and, perhaps, their trusts.

What effect do taxes have on estate planning

When it comes to estate planning, taxes are important because there are several sorts of taxes to be mindful of — more on that below — but they may also be substantial.

Federal estate taxes might exceed 40% on the high end. If you have more than the estate tax exemption of $1 million, you would pay $400,000 to the IRS while keeping $600,000 to give away. This does not even include any state tax liability.

Biden’s inheritance tax plan and the federal estate tax exemption

Each person has a lifetime gift or estate tax exemption, often known as a basic exclusion amount or unified tax credit. The amount of assets you can give away during your lifetime or after your death without paying federal estate or gift taxes is specified by this exemption. The federal estate tax exemption is $11.7 million per person in 2021 and $12.06 million in 2022. Married couples can double that amount by two.

President Joe Biden promised to lower the estate tax exemption during his 2020 campaign. This proposed move is being considered with other tax reforms, such as hiking capital gains tax rates. However, after the Tax Cuts and Jobs Act expires in 2026, the estate tax exemption threshold is anticipated to revert to around $5 million historical levels.

When creating an estate plan, it is helpful to consider the amount of your estate and keep exemption restrictions in mind.

Which taxes could be involved?

Estate tax planning combines a variety of federal and state transfer taxes.

Federal income taxes

The federal exemption limit includes the following:

  • Gift tax 

Giving money or other assets without expecting anything in return may expose you to gift tax if your lifetime donations, including your estate, exceed the federal exemption level. If you are a U.S. citizen, gifts to your spouse are exempt from this tax.

  • Estate tax 

Suppose the amount of your taxable estate exceeds the federal exemption level. In that case, the transfer of your taxable estate – which includes assets such as securities, cash, and other property – may be liable to estate tax upon your death. Given the unrestricted marital deduction, assets inherited by your spouse if a U.S. citizen is generally not liable to inheritance tax.

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