The responsibility of paying taxes on a deceased person’s estate falls on their beneficiaries, personal representative, or successor trustee. However, estates typically need to be quite large, with a value of $11.58 million or more, to be subject to federal estate tax. Many states do not have an estate tax or inheritance tax. If your estate is subject to taxes, the executor or personal representative will be responsible for preparing and filing the necessary tax returns.
Understanding Estate Taxes
Estate taxes are based on the market value of assets in the estate, not the original purchase price. This means that assets that have appreciated over time will be subject to tax, with the advantage of potential tax savings if an asset’s value has dropped. Surviving spouses are not subject to estate tax calculations, as they are entitled to unlimited marital deduction rights. However, beneficiaries may be subject to estate taxes if the estate exceeds the limit after the surviving spouse’s passing.
Federal Estate Taxes and Probate
If taxable gifts exceed $11.58 million, the Internal Revenue Service will require the estate to pay estate taxes on the gross assets.
State Estate Taxes
States with estate taxes typically have lower exemptions than federal estate tax laws, with some as low as $1 million. Estate taxes are levied by the state where the deceased person was residing at the time of their death.
State Inheritance Taxes
While there is no federal inheritance tax, some states like Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania impose taxes on certain inherited assets. The amount and rate of tax depend on the value of the inheritance, the relationship to the deceased, and the state’s specific laws and rates.
understanding the tax implications during probate is crucial. While most assets may not be taxable, it is essential to report any cash or income received from the estate to avoid tax liabilities. Hiring a knowledgeable lawyer to guide you through the probate process can ensure a successful outcome.
