Estate and Gift Tax: Your Questions Answered

Do Estates Generally Incur Federal Estate Taxes?

For the vast majority of estates, federal estate taxes are not a concern. Only those with taxable estates worth several million dollars are impacted. Properties transferred to a U.S. citizen spouse or to a tax-exempt charity are not subject to these taxes.

How Can I Minimize Federal Estate Taxes?

Several strategies can help reduce federal estate taxes:

• Gifts. Annually, you can give up to a certain amount to each recipient without triggering a gift tax. Furthermore, paying someone’s education or medical expenses—or donating to a charity—is also exempt from gift tax.
• AB Trusts. These allow spouses to use their property for life while also reducing the taxable estate of the surviving spouse.
• QTIP Trusts. These trusts allow estate tax deferment until the demise of the second spouse.
• Charitable Trusts. Large charitable donations can be set up through these trusts.
• Life Insurance Trusts. Life insurance proceeds can be protected from estate taxes through such trusts.

Is It Possible to Circumvent Estate Taxes by Gifting Property Before Death?

The federal gift and estate taxes are consolidated into a single system. You’re able to give away the amount covered by the estate tax exemption across your lifetime or posthumously without facing taxes. Regular gifts typically fall out of this purview, with only those exceeding the annual ceiling to any individual or non-charitable entities being considered taxable.

Do States Also Levy Estate Taxes?

Certainly, some states might impose estate taxes or inheritance taxes regardless of the federal estate tax obligations. States often enact taxes on estates that fall below the federal taxable threshold, and rates are usually less than the federal estate tax rate. Money and assets passed to a surviving spouse are usually exempt, as they are with federal estate tax.

Is There a Way to Avoid State Estate or Inheritance Taxes?

While strategies for avoiding state taxes are limited, those with residences in multiple states might benefit from establishing legal residence in a state without these taxes.

For further inquiries on estate and gift taxation, please contact James H. Wilson at 804.740.6464. We are prepared to guide you through these complex matters.