For most people, the primary reason to create an estate plan is to ensure that loved ones are provided for after their death. With that goal in mind, it only makes sense to maximize the value of the estate you leave behind – and minimize any costs or liabilities that could decrease the value of the assets you leave your beneficiaries. Since we all know that just about everything is taxed in the United States, it makes sense to wonder “Is the inheritance you leave your kids taxable?” If it is, it could seriously decrease the value of the inheritance you leave them. Fortunately, the answer to that question is generally “no.”
Your children will not have to pay federal taxes on the inheritance you leave behind for them. The reason for this is that the transfer of wealth has already been subject to taxation before it is transferred. When you die, the value of your estate assets, combined with the value of any gifts you made during your lifetime, is potentially subject to federal gift and estate taxation. Each taxpayer is entitled, however, to exempt up to the lifetime exemption amount which is set at $5 million and adjusted annually for inflation. For the year 2016, for example, the lifetime exemption limit is $5.45 million. That means you can gift assets during your lifetime and/or at the time of your death valued at up to $5.45 million before your estate will incur federal gift and estate taxes. If your estate value exceeds that amount it will be taxed at the rate of 40 percent. Your children (or other beneficiaries), however, will not have to pay those taxes because any tax due must be paid during the probate of your estate and before assets can be transferred to intended beneficiaries or heirs of the estate.
Although your children will not have to pay federal taxes on an inheritance, there are a handful of states, such as Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee that impose some type of state inheritance tax. Precisely how state inheritance taxes are calculated and at what rate they are insured will vary from one state to the other. Moreover, state inheritance taxes are liable to change at any time, making it even more important that you consult with an experienced Missouri estate planning attorney when you create your estate plan.
If you have additional questions or concerns about inheritance taxes in Missouri, or about estate planning in general, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.