Federal Estate Tax: The Estate Tax is a tax on your right to transfer property at your death. The tax is applied to everything you own or have interests in at the date of your death. The fair market value of all these interests and assets, at the date of your death, equates to your “Gross Estate.” After a full accounting of your gross estate is calculated, certain deductions, and discounts in valuations will be applied to arrive at your “Taxable Estate.”
After the taxable estate is determined, the value of any lifetime taxable gifts made before death is added to this number and the tax is computed. The tax is then reduced by any available credits, such as the unified credit.
While the 2014 estate tax rate is 40%, the 2014 lifetime exemption for US Residents is $5.34 million dollars. The lifetime exemption is also portable, which means that if the first spouse to die doesn’t use up his or her individual gift/estate tax exemption, the surviving spouse can use what’s left. That gives the couple a total exemption of twice the individual exemption amount. They can share that total exemption amount in the way that provides the greatest tax benefit. With the portability and the unlimited marital deduction allotted to US Residents, there are various strategies to reduce estate tax liability even after one spouse has passed away.
While US Residents have a large exemption amount, foreigners only have $60,000 in lifetime exemption. Foreigners also do not have an unlimited marital deduction like US residents. Meaning, where a foreigner purchases a vacation house for $400,000 on South Beach, and then passes away a few years later, his vacation house could subject his estate to $136,000 in estate taxes. There are strategies available to prevent such adverse consequences like using a foreign real estate holding structure.
If you are interested in discussing your estate plan, please contact Bauer Law Office. P.A. to schedule a free conference.
