Will A Married Person Pay Estate Tax Upon Death?

As described in an earlier blog, the estate tax is simply a one-time tax that some people have to pay upon their deaths. It is based on the net value of this person’s total assets, so 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. 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. Today’s blog is about how this tax applies to a married couple and what happens when one of those spouses dies. 

How Does Estate Tax Affect Married Couples?

This estate tax is a federal tax. Luckily, for those of us living in California, this is the only kind of estate tax we have to anticipate. Other states have additional estate taxes of their own, in addition to the federal estate tax. 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 married couples, each spouse gets the $11,580,000 exemption for a total exemption combined of $23,160,000. This is the total amount that can be exempted from being taxed upon death for this couple. If one person dies, he or she is able to gift his or her exemption to the surviving spouse. This move is referred to as portability and it involves a timely filed estate tax return.

A surviving spouse will only have to pay estate tax if the net worth of that person’s assets is worth more the exemption total, with or without a gifted exemption from a spouse that previously passed away. 

Does the Exemption Amount Change Frequently?

Yes, the exemption amount has changed regularly. In fact, less than a decade ago, this amount was only one million dollars which forced a large amount of people to do advanced estate planning. The current amount, based on the tax laws until it sunsets in 2025,  jumped up to $11,580,000 in 2020. With such a high number, this type of tax really only affects the very wealthy, which includes less people than it did back when the tax amount was only one million dollars. One thing to keep in mind is that this law is slated to end in 2025 when it sunsets back to just five million dollars unless Congress changes it again. 

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!