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Just In Time For Tax Season

On Behalf of | Feb 2, 2017 | Estate Planning |

Just in time for tax season! What are the various taxes that may affect an estate? Here’s a very brief overview of two of the taxes that could affect you. Make sure you talk to a lawyer or accountant prior to taking any action based on your thoughts from reading this general summary.

Estate Tax

The estate tax is a tax on transferrable property at a person’s time of death. It involves accounting for all items owned by the deceased or which the deceased has interests in at the time of death. Such property might consist of insurance, trusts, cash and securities, business interests, annuities, real estate, and other assets. Once all items have been accounted for, the fair market value is determined and used to calculate the Gross Estate, which is then applied as estate tax if appropriate.

In general, only wealthy estates have an estate tax applied. Smaller estates don’t have enough in assets to trigger a tax. The exemption level in 2015 was $5.43 million per person. Anything less than that is not likely to be applied the estate tax. In 2016, an individual could leave up to $5.45 million to certain beneficiaries and not pay an estate tax; a married couple could leave up to $10.9 million1 .

However, for Maryland, the exemption level is lower. For Maryland and individual may pass $2 million to certain beneficiaries and the estate will not incur an estate tax. Careful planning is vital for married couples whose joint assets are greater than $2 million. Unlike the federal estate tax exemption, the decedent’s exemption may not be doubled up to the survivor.

Gift Taxes

A gift tax applies to the transfer of property between individuals while receiving nothing or less than full value in return. The giver does not have to declare or intend for the transfer to be a gift; the tax will apply regardless.

The most common item transferred as a gift is money, but the tax can apply to the transfer of any kind of property. Selling something at less than its full value may also trigger the gift tax, as well as making an interest-free or reduced-interest loan.

There is a certain threshold that must be reached before the gift tax applies. A person could make a gift equaling the annual exclusion limit to any one person or recipient before the tax is applied. As of January 1, 2013, the annual exclusion limit is $14,000. This means that you could make a gift to more than one person, but the amount to each person could not exceed the current limit of $14,000.

Inheritance Tax

In Maryland, inheritance tax will be assessed for any bequests or any inheritance of ten percent may be assessed upon the value passed unless the person or entity receiving the bequest or inheritance is exempt from the tax. For example, exemptions are allowed for spouses, children, siblings, and lineal descendants of the deceased. Exemptions also apply to certain non profit entities such as religious institutions and charities.

Personal Representatives and Executors (Estate administrators)

An estate administrator has certain duties to care for a deceased person’s finances or the estate during tax time. The administrator may need to file an estate tax return if the estate has transferred assets to heirs or beneficiaries which exceed the annual limits. Typically, only large estates have the estate tax applied and need to file the return.

Income tax returns may also be a consideration for an administrator. A tax identification number would be required for this return. Income tax returns come into play for an estate if the estate’s assets generation more than $600 in annual income. An administrator may also need to file income tax returns for the decedent, not just for the decedent’s estate. This return would only be needed for the year of death or for any previous years during which an income tax return wasn’t filed if the decedent’s income met or exceeded the income requirements.

Talk to a lawyer or accountant to find out how these taxes affect you and your estate. You can also go to for more information from the IRS.

1Ebeling, Ashlea. “IRS Announces 2016 Estate And Gift Tax Limits: The $10.9 Million Tax Break.” October 22, 2015. Forbes.