Deciding how to divide your estate when you are gone may be the primary reason for creating an estate plan; however, there are also a number of other important reasons. One of those reason is to limit the impact that taxes will have on your estate when your estate is probated. You may already have some idea how federal gift and estate taxes can impact your estate but what about other taxes? For example, will your estate incur Missouri estate taxes? Will your beneficiaries and heirs have to pay Missouri inheritance tax on the gifts you leave for them in your estate plan? Knowing the answers to these questions is critical to the creation of a well thought out estate plan.
Will You Owe Federal Gift and Estate Taxes?
All estates are potentially subject to federal gift and estate tax. The tax is essentially a tax on the transfer of wealth that is collected after a taxpayer dies and during the probate of the taxpayer’s estate. The tax applies to the value of all qualifying gifts (just about all gifts) made during the taxpayer’s lifetime together with the value of the estate left behind by the taxpayer at the time of death. The tax is levied at a rate of 40 percent, making it well worth your time and efforts to include tax avoidance strategies in your estate plan if there is any chance your estate will incur the tax. Fortunately, all taxpayers are also entitled to take advantage of the “Lifetime Exemption.” The Lifetime Exemption limit was set at $5 million back in 2012 as part of the American Taxpayer Relief Act (ATRA); however, that amount is increased each year to account for inflation. For 2016, the Lifetime Exemption amount is $5.45 million. Therefore, only estate assets valued in excess of the limit will incur federal gift and estate taxation. For example, if you made lifetime gifts valued at $3 million and left behind an estate valued at $5 million your taxable estate would be $2.55 million, incurring a tax of $1.02 million.
Does Missouri Collect an Estate Tax?
The federal gift and estate tax is imposed by the federal government and paid to Uncle Sam. Each individual state may also impose an estate tax if the state so chooses. Fortunately for taxpayers, only a handful of estates impose a state level estate tax. Even more fortunate for residents of Missouri is the fact that Missouri is not one of those states. Therefore, if your estate is probated in the State of Missouri you will not need to worry about the impact of state estate taxes.
Will Your Beneficiaries Have to Pay an Inheritance Tax?
One other type of tax that could impact your estate plan indirectly is the inheritance tax. Inheritance taxes are different than estate taxes because they are imposed on the beneficiary not the estate owner. Where estate taxes (both federal and state) must be paid by the estate before assets are transferred out of the estate during the probate of the estate, inheritance taxes are paid by the beneficiary of the gift after receiving the gift. Individual states also decide if they wish to impose inheritances taxes; however, even fewer states do have an inheritance tax. Once again, Missourians are fortunate in that Missouri does not impose an inheritance tax. Keep in mind, however, that if you have beneficiaries who are residents of a state other than Missouri, inheritance taxes could still impact your estate planning goals.
The best way to have a clear, and current, understanding of how gift, estate, and/or inheritance taxes will impact your estate plan is to be sure that you work closely with an experienced Missouri estate planning attorney when creating your comprehensive estate plan.
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding gift and estate taxes or inheritance taxes, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077.