Will your estate be taxed?

The common belief amongst many in Battle Creek may be that the government will always find a way to take its bite out of your assets and property. That assumption likely extends to your estate; why else would there be an estate tax? Yet rather than questioning why there is an estate tax, a better question may be whether or not your estate will actually owe it. 

The enactment of estate tax thresholds has drastically decreased the number of such returns filed in recent years. The Internal Revenue Service reports that estate tax returns dropped from just over 49,000 in 2006 to 11,917 in 2015. These thresholds exist because of the federal estate and gift tax exemption (Michigan does not have an estate tax). This allows you to exempt up to a certain amount to pass on to your heirs. According to Forbes magazine, the threshold for 2017 is $5.49 million per individual. 

So what does this mean to you? You can leave the first $5.49 million of your estate to beneficiaries without having to pay estate tax. If the total value of your estate is less than that amount, no tax is due at all. If it is above it, only the amount above is subject to tax (which is roughly 40 percent of the value). Yet even if your estate is valued above the threshold, you can still find a way to avoid the tax.

The unlimited marital deduction allows you to transfer as much as you want to your spouse tax free. You can then combine your unused exemption amount with his or hers to protect almost $11 million. This benefit, known as portability, is only available between spouses. It is not automatic, either. He or she must file an estate tax return the year you die claiming portability for it to take effect. 

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