What is the Death Tax (Estate Tax)?

It’s been said that nothing is certain but death and taxes and, for some, this is definitely a harsh truth. The “Death Tax” is a nickname often used to refer to the federal estate tax. This is simply a one-time tax that some people have to pay upon their deaths. It is based on the total value of a person’s assets. It includes things like bank accounts, real estate, and stocks. This tax is based on whether or not your total net worth is more than about 11.6 million dollars as of 2020. If your sum is less than that amount, then you are not charged a death tax. If your sum is more than that, you will be taxed a percentage of 40% for any surplus amount that goes over that 11.6 million dollar benchmark. Based on these numbers, it’s clear to see that this tax mostly affects the very wealthy. 

What is the Exact Amount I Will Be Taxed? 

Specifically, the amount you want to keep in mind for 2020 is now $11,580,000. Last year, it was $11,490,000. If everything you own is totaled up and it is less than $11,580,000, then you are exempt from this tax. However, if your total is more than this amount, you will be taxed. 

For example, let’s say everything you own ends up being around 15 million dollars at the time of your death. You would take that amount and subtract the base $11,580,000. This would leave $3,420,000. You would then take that remainder and multiply it by 40% to get $1,368,000. That final amount would be your estate tax and it would be due within nine months of your death. 

Estate Tax Facts to Keep in Mind

  • Don’t pass up on deductions. This is when an attorney will definitely come in handy. Make sure you cross reference with a trusted legal advisor to take advantage of any deduction that applies to you. 
  • Read up on the marital deduction. Some situations vary based on whether or not your spouse is a U.S. citizen. 
  • Jointly-owned property is included. This means 50% of what you own with a spouse and 100% of what you own with anyone you are not married to. 
  • Trust assets may be included. 
  • Every asset counts. This includes stocks, bonds, large gifts, real estate, artwork, jewelry, bank accounts, etc. 
  • If you are survived by a spouse, you may choose to pass your unused exemption to the surviving spouse. This choice must be made on a timely filed estate tax return.

Your next step is to join our facebook group called “Parents Protecting Assets in California”. We provide valuable information on protecting assets from future in-laws and creditors!