Estate tax planning is more than just drafting a will or trust—it’s about ensuring that your loved ones are cared for and your wishes are honored after you’re gone. A key element in this process is understanding taxable estates, specifically which assets are included and which aren’t, and why this distinction can significantly impact your family’s future. Many families and elders find estate planning overwhelming, but getting clarity on taxable estates is a great place to start. If you're unsure about taxable estates, the following blog will guide you through the basics and help you understand why working with an experienced attorney, like an estate planning lawyer at Dorcey Law Firm, PLC, can bring peace of mind.
What Is a Taxable Estate?
Before we dig into what’s included, defining a taxable estate is important. A taxable estate consists of any property or assets owned at the time of an individual’s death that are subject to estate taxes. Federal and, in some cases, state authorities assess these taxes based on the value of the estate, which is determined by all assets owned by the deceased at the time of death. While the federal estate tax only applies to estates exceeding certain thresholds (the 2023 exclusion amount is $12.92 million for individuals or $25.84 million for married couples), understanding your taxable assets is critical for families, especially those with significant or complex estates.
Assets Included in a Taxable Estate
Once you know what taxable assets are and what constitutes a taxable estate, it’s easier to understand which assets are typically included in a taxable estate.
Your taxable estate can include a compilation of the following:
1. Real Estate Holdings: Any properties owned by the deceased, such as homes, land, or commercial properties, are included in the taxable estate. This applies whether the property is in the deceased’s primary state of residence or located elsewhere.
2. Financial Accounts: Bank accounts (both checking and savings), certificates of deposit (CDs), investment accounts, and other financial accounts owned by the deceased are considered part of a taxable estate.
3. Retirement Accounts: Retirement accounts, such as 401(k)s, IRAs, and similar plans, are also included if they are in the deceased's name. It's important to note that while these funds are included in the taxable estate for estate tax purposes, they can also trigger income taxes for beneficiaries when withdrawn.
4. Life Insurance Proceeds: This one often surprises people. If the deceased was the owner or had control over a life insurance policy, the policy’s death benefit is usually included in the taxable estate—especially if the estate or a trust is the beneficiary.
5. Business Interests: For individuals with ownership stakes in LLCs, partnerships, or corporations, the value of these business interests is included in the taxable estate. Valuation complexities often arise, especially for those with family-owned businesses or closely held corporations.
6. Personal Property: High-value personal items, such as jewelry, artwork, antiques, vehicles, or other tangible assets, are included in the taxable estate.
Assets Excluded from a Taxable Estate
Understanding what’s not included can be just as crucial, as these exclusions directly impact the overall value of your taxable estate.
A taxable estate typically cannot include the following:
- Irrevocable Trust Assets: Assets held in an irrevocable trust are typically not included in the taxable estate because the deceased relinquished ownership and control of these assets while alive. This makes irrevocable trusts a popular estate planning tool for reducing tax burdens.
- Gifts Made During Life: If the deceased gifted assets during their lifetime and those gifts fell within the annual exclusion amount (currently $17,000 per recipient in 2023), they are not included in the taxable estate.
- Certain Retirement Pensions: Depending on how they are structured and whether payments continue past death, some pensions may not count toward a taxable estate.
- Jointly Owned Property: Depending on how the property is titled, certain jointly owned assets may pass directly to the surviving joint owner(s) and, therefore, not be included in the taxable estate. For example, joint tenancy with rights of survivorship can help property escape inclusion. However, this requires careful planning and appropriate documentation to ensure compliance.
Why Knowing This Matters for Estate Planning
At this point, you might be wondering, “Why does it matter so much what is and isn’t included in a taxable estate?”
Knowing what's included in a taxable estate can help you:
- Minimize Estate Tax Liability: If your estate is substantial, understanding what gets taxed gives you the opportunity to take proactive steps to lower your tax liability.
- Protect Your Family Legacy: Reducing the taxable value of your estate means your heirs can inherit more of your legacy without facing unexpected financial burdens from estate taxes.
- Avoid Probate Complications: Certain assets can complicate the probate process, delaying distributions to heirs. With proper planning, this can often be avoided.
- Create an Easier Transition for Loved Ones: An organized and well-structured estate makes it easier for your family to carry out your wishes without added stress.
How an Estate Planning Attorney Can Help You
Estate planning is an intricate process, and small mistakes can carry costly consequences for your heirs. This is where experienced estate planning attorneys, like the legal team at Dorcey Law Firm, PLC can help. Our legal team has experience helping families understand the complexities of estate planning, including the implications of taxable estates. From creating trusts to minimizing tax liabilities, our team ensures you don’t have to tackle these challenges alone. Together, we’ll create a plan that provides peace of mind for you and your loved ones.
Contact Dorcey Law Firm, PLC Today
Estate planning can be overwhelming, but taking the time to understand taxable estates is the first step toward protecting what matters most—your loved ones. If you're ready to safeguard your family's future, contact the knowledgeable estate tax planning attorney at Dorcey Law Firm, PLC online. Peace of mind is invaluable. You can also call us at (239) 309-2870 to start planning for the future you and your family deserve.