You may be struggling to pay your mortgage and may not remember the last time you could afford a nice vacation without realizing that, according to the government, you’re a millionaire. Most people are surprised by the value of their gross estate.
Although the amount that is exempt from federal estate taxes is currently $5,250,000 ($5,340,000 in 2014), and the exemption from New York State estate taxes is $1,000,000, it’s not just your bank account and investments that are used to reaching those figures. Many people of fairly modest means have a state estate tax issue after their death.
What does the IRS include in calculating your estate tax?
The tax on your property at the time of your death is imposed on your gross estate minus deductions. The IRS doesn’t miss much. It includes in your gross estate almost everything you own or have an interest in:
- Personal belongings
- Real estate
- Business interests
- Life insurance policy proceeds
- Retirement accounts
Deductions and Exemptions
Deductions are allowed for mortgages and other debts, expenses for administering your estate, losses, and property that passes to your spouse and certain charitable institutions.
For the most part, the only assets excluded from your gross estate are those not in your name or outside your control, including:
- Irrevocable life insurance trust. A life insurance policy on your life that was either never owned by you or transferred more than three years before your death to an irrevocable trust of which you are not a trustee, is not considered part of your estate for estate tax purposes.
- Other irrevocable trusts. Assets transferred to a grantor retained annuity trust or unitrust, qualified personal residence trust, charitable remainder trust or charitable lead trust, among others, are not considered part of your estate.
One of the first things your estate planning attorney does during your initial consultation is assess the value of your estate for estate tax purposes. It is crucial to hire an attorney who understands the tax implications of your estate plan and is knowledgeable about ways to make sure your heirs receive the maximum, and the government the minimum, amount possible upon your death. Contact Armstrong & Lamberti, PLLC today for a consultation.