• Wealth Management Division

Everything You Need to Know About Estate Tax

The estate tax is a tax on property that passes on to others after you die. Estate taxes are levied on the total value of your estate, which includes your house, stocks, bonds, life insurance, and other valuable assets, over the relevant exemption threshold. Estate taxes apply to everything you possess, regardless of ownership structure or whether the assets have gone through probate.

The federal inheritance tax, sometimes known as the "death tax," was originally imposed in the United States with the Stamp Act of 1797 to assist fund naval rebuilding. Following many repeals and reinstatements, the Revenue Act of 1916 established the present estate tax. Despite its lengthy history, this tax is still unpopular.

Estate taxes are based on the net valuation of your estate, which comprises all of your assets less eligible debts, expenses, and deductions (such as mortgage debt and administrative expenses for the estate). To determine any taxes owed, the appropriate estate tax exemption is deducted, and the remaining taxable value is multiplied by the applicable estate tax rate.

The unlimited marital deduction is the most popular exemption to the federal estate tax. Regardless of the amount of the estate, the government exempts all transfers of wealth between a husband and wife from federal estate and gift taxes. Although, t To qualify for this exemption, the surviving spouse must be a U.S. citizen.  When the surviving spouse dies, the estate is subject to estate taxes, and unless the necessary portability arrangements are established, only the surviving spouse's relevant exemption can be used.

The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually increased the federal estate tax exemption before abolishing it entirely for the 2010 tax year. The 2010 Tax Relief Act extended the federal estate tax with a $5 million exemption, indexed for inflation after 2011, until December 31, 2012. The American Taxpayer Relief Act of 2012 made the 2010 estate tax measures permanent, however, the maximum federal estate tax rate was hiked to 40%. The Tax Cuts and Jobs Act, which was signed into law in December 2017, quadrupled the federal estate tax exception in 2018 to $11.18 million, still, indexed annually for inflation.

For 2021, the exemption amount for the estate tax reached $11.7 million, while, for 2022, the exemption totaled $12.06 million after adjustments for inflation. The maximum estate tax remains at a 40% rate. Check with your tax professional to be sure that your estate is protected as much as possible from estate taxes upon your death.

Would you like to consult with a financial advisor about the prospects of establishing an estate plan?


The material on this page reflects PG Capital's professional opinions as of today and is subject to change. The information presented here has not taken into account any particular investor's investment goals or needs, and investors should not base their investment decisions entirely on this material. Past performance is not a guarantee of future results. All investments involve some amount of risk, and investors have different time horizons, goals, and risk tolerances, so consult with your PG Capital Financial Advisor before proceeding.

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