When you create your estate plan, your primary objective will likely be to plan for the distribution of your estate assets to loved ones upon your death. Along with that primary objective, however, you will likely also include related goals and objectives. For example, you will probably need to consider the impact taxes will have on your estate when you die to ensure that your estate has sufficient assets available to pay any tax liabilities due to the state and/or federal government. In addition, you may also be wondering if you need to worry about your loved ones having to pay an inheritance tax in Missouri.
The Probate Process
When you die, your estate will go through the legal process known as probate. A number of important steps occur during the probate of an estate. One of those steps is ensuring that any state and/or federal taxes owed by the estate are paid because most tax obligations must be satisfied before assets can be transferred to the intended beneficiaries and/or heirs of the estate.
Federal Gift and Estate Taxes
All estates are potentially subject to federal gift and estate taxes. The federal gift and estate tax is essentially a tax on the transfer of wealth. The tax is imposed on the combined value of all gifts made by you during your lifetime and the value of all estate assets owned by you at the time of your death. For example, if you made lifetime gifts valued at $4 million and owned estate assets valued at $5 million at the time of your death, you would be taxed on the combined total of $9 million at a tax rate of 40 percent. Fortunately, all taxpayers are also entitled to use the lifetime exemption, however, to reduce or eliminate any federal gift and estate tax liability. The lifetime exemption limit was set at $5 million back in 2012; however, it is adjusted annually for inflation. For 2017, the lifetime exemption limit is $5.49 million. Therefore, you may deduct $5.49 million from your $9 million estate, leaving a taxable estate of $3.51 million. A well thought out estate plan can dramatically reduce that figure even further by implementing tax avoidance tools and strategies within the plan.
State Estate Taxes
Federal estate taxes are not the only estate taxes a taxpayer must consider when creating an estate plan. Each individual state also has the option to impose a state level estate tax as well. Fortunately, the State of Missouri does not currently impose an estate tax; however, if you own property in another state and/or you relocate to another state during your lifetime you will need to take into consideration that state’s estate tax liability if the state is one of a handful of states that does impose an estate tax.
Inheritance Tax in Missouri
Finally, you need to consider whether your beneficiaries will need to pay an inheritance tax in Missouri. Unlike federal and state estate taxes, which are paid by the estate before assets are transferred to beneficiaries, an inheritance tax is imposed after the transfer of assets. Therefore, when an inheritance tax is imposed it must be paid by the beneficiary, not by the estate. The good news is that the State of Missouri does not collect inheritance taxes. If, however, you have beneficiaries that live in a state that does impose an inheritance tax you will want to tax that into consideration when planning your gifts within your estate plan. As of 2016, only six states (Iowa, Kentucky, Pennsylvania, Maryland, Nebraska, and New Jersey) impose an inheritance tax. Clearly, the value of a gift is diminished if the beneficiary must pay an inheritance tax, making it even more important that you plan accordingly. Because tax laws are subject to change, always check with your Missouri estate planning attorney to find out which states currently collect inheritance taxes when revising your estate plan.
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding the inheritance tax in Missouri, contact the experienced St. Louis estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.
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