A Primer on the Estate Tax for 2022
What is the Estate Tax?
The estate tax is a federal tax on your right to transfer your assets when you die. The estate tax exemption is the portion of an estate that is by law non-taxable. In Georgia, there is no state level estate tax.
Generally, when you die, your estate is not subject to the federal estate tax if the value of your estate is less than the exemption amount. When calculating whether you are subject to this tax, the IRS considers your Gross Estate, which includes everything you owned or had interest in at the time of your death. This can include cash, securities, real estate, life insurance, trusts, annuities, business interests, IRA’s and qualified retirement plans, and joint property. The current fair market value of these items is used to determine the value of your estate.
How do I determine if my Estate will be subject to the Estate Tax?
Whether your Estate will be taxed depends on the size of your Gross Estate, and current tax law. As of 2022, the Federal Applicable Exclusion Amount is $12.06 million for an individual, and a combined exemption of $24.12 million for a married couple. As of 2022, assets over $12.06 million, or $24.12 for a married couple, will be taxed anywhere from 15% to 40%. These days, most people’s Estates are not at risk of being taxed. Nevertheless, it’s important to pay attention to changing tax laws. Notably, the Federal Applicable Exclusion Amount is expected to drop to about $6.2 million in 2025.
When calculating the size of your Gross Estate keep in mind that certain tax credits and reductions may be subtracted to arrive at your “Taxable Estate”. These may include mortgages, other debts, funeral expenses, estate administration fees, property passing to your surviving spouse, property passing to qualified charities, and losses during estate administration. Once you take these deductions, your Gross Estate is then reduced by the Federal Applicable Exclusion Amount and the remaining balance of your Gross Estate is subject to tax.
You may have questions about estate planning strategies to minimize the size of your taxable estate, or you may be interested in revising your old estate plan to account for tax law changes, or changes to your financial situation. In any case, the attorneys at Georgia Estate Planning & Probate are available to provide reasonable and experienced counsel. Give us a call today.