What is the Estate Tax?Why Should I Care? Does it Affect Me?
While the federal estate tax currently only affects a small percentage of estates, it is scheduled to be reduced to approximately 6 million after being adjusted for inflation. In addition, some states have much lower exemption levels.
Arizona does not currently impose an estate or inheritance tax, however if you have property in a state which does, that property may be subject to an estate or inheritance tax.
If you have any questions about the estate or inheritance tax, please contact us and we will be happy to go over your options.
What is the difference between estate tax and inheritance tax?
An estate tax is a tax on the value of the decedent’s estate charged to the estate. An inheritance tax is a tax on the recipient for receiving an inheritance. The federal government does not charge an inheritance tax and very few states impose an inheritance tax.
The federal government currently imposes an estate tax of 40% on estates over 12 million in 2022. This exemption is reduced by any lifetime gifts which have used up any of your lifetime exemption. Arizona does not impose an estate tax.
What is an Estate? Are all properties treated the same?
An estate is a legal term meaning all the things you have ownership over. This includes everything you physically own as well as intangible assets such as cryptocurrency, brokerage accounts, retirement accounts, tangible personal property, cars, gold bars/coins, artwork, random stuff, and more.
The IRS is very broad in its inclusion of assets. Your estate even includes life insurance policies you retain certain ownership interests in. It includes property you have a general power of appointment over. You’ll want to see a knowledgeable attorney for a full list, but in general, everything that you have the ability to give to someone else is includible in your estate.
Guidance on Estate and Inheritance Tax in Arizona
If you think your estate might be subject to the estate tax, you should call us to discuss your options. Through effective planning, we can reduce or eliminate the tax liability of your estate.
What is excluded from estate tax? How is it calculated?
The federal estate tax is applied to your entire estate above the exemption amount. Only the things which pass outside of your estate will be excluded from the tax, but the IRS allows for an unlimited marital deduction (to US citizens) and deductions for charitable bequests. The following are some additional ways to remove assets from your estate and reduce the tax burden on your beneficiaries.
- Private Annuities
- Charitable Transfers
- Annual Lifetime Gifting
- Transference to a Minor
- Tax Burden Shifting
- Extensions, deferrals, or special use value planning
When do I need to hire an estate tax attorney?
You should engage the services of a knowledgeable tax and estates attorney in Phoenix if:
- You reasonably anticipate your estate might be subject to the federal estate tax (11 million in 2022, set to sunset to ~6 million in 2026)
- Any of your beneficiaries might move to a state with an estate or inheritance tax.
- You have international property (business or real estate)
- You are planning to start or own a business