Hey everyone, it’s me, Bette Hochberger, CPA, CGMA, and for today’s blog, I’ll be going over estate taxes. Estate taxes might sound intimidating, but understanding them is key to protecting your wealth and ensuring your loved ones are cared for. Whether you’re just starting to think about estate planning or revisiting your strategy, here’s what you need to know about estate taxes, how they are assessed, and tips for planning your legacy.
What Are Estate Taxes?
Estate taxes are taxes imposed on the transfer of your estate after your death. Your “estate” includes everything you own—real estate, investments, cash, personal possessions, and businesses.
The tax is assessed on the total value of your estate before it is distributed to your heirs. However, most people don’t need to worry about these taxes because they only apply to estates exceeding a specific value threshold, which varies depending on where you live.
For example, in the United States, the federal estate tax exemption for 2025 is $13.99 million per individual (or $27.98 million for married couples). This means only assets exceeding this amount are subject to federal estate taxes. However, some states have their own estate or inheritance taxes, and their exemption limits tend to be much lower.
How Are Estate Taxes Assessed?
The process starts with calculating the total value of your estate. This includes:
- Real estate properties
- Bank accounts and investments
- Life insurance payouts (if owned by the deceased)
- Personal belongings like jewelry, art, or collectibles
Once the total value is determined, any debts, funeral costs, and administrative expenses are subtracted. The remaining amount is what’s subject to taxes.
At the federal level, estates exceeding the exemption threshold are taxed at a progressive rate that can go up to 40%. State rates vary widely, so it’s essential to check your local laws.
Tips for Smart Estate Planning
Understand Exemptions and Limits
Familiarize yourself with federal and state exemption thresholds. If your estate value approaches or exceeds these limits, consider strategies to reduce your taxable estate.
Use Gifting Strategies
Take advantage of the annual gift tax exclusion ($19,000 per person in 2025). Making tax-free gifts during your lifetime reduces the size of your estate, potentially saving your heirs from paying higher taxes later.
Establish Trusts
Trusts are powerful tools for minimizing estate taxes. For instance, revocable living trusts allow you to maintain control of your assets while avoiding probate, while irrevocable trusts can remove assets from your taxable estate entirely.
Plan for State Taxes
Even if your property won’t be subject to federal taxes, state-level estate or inheritance taxes might still apply. Research the laws in your state or consult a tax professional.
Update Your Plan Regularly
Life changes like marriage, divorce, or the birth of a child can impact your plan. Stay on top of these changes to ensure your plan reflects your current wishes and tax strategies.
Work with Professionals
This planning can be complex, especially if your estate value is significant. A qualified attorney or financial planner can guide you through tax-saving strategies and ensure your plan complies with all laws.
Why Estate Planning Matters
Estate taxes, while only applicable to a small percentage of people, can significantly impact your loved ones if they aren’t planned for. By understanding the basics and taking proactive steps to minimize taxes, you can help secure your legacy and provide peace of mind for those you care about most.
Start planning now—your future self (and your family) will thank you!
I’ll see you next time.
