Most people have heard of the estate tax, but not everyone knows what it is. Understanding estate tax is a crucial part of making an estate plan that will accomplish your estate planning goals. The first thing that you’ll want to remember is that two possible estate taxes could be levied on the estate of a decedent. These are state estate tax and federal estate tax. If you are a resident of Kansas, you’ll be relieved to know that presently, Kansas does not collect a state estate tax. The estates of Kansas residents are subject to federal estate tax, which we’ll examine more later on.
The next thing to know about the estate tax is that it differs from the inheritance tax. Estate taxes are levied on estates. They are one of the types of expenses that an estate must pay before the assets contained in the estate may be distributed to the decedent’s heirs. Inheritance tax is different. Inheritance tax is a tax that a beneficiary or heir must pay on the value of assets that they inherit.
A third key point to remember about the estate tax is that some estates are taxable while others are not. If the value of a decedent’s estate exceeds the threshold for filing a federal estate tax return, the estate must file an estate tax return. The federal estate tax threshold varies from year to year, so it is critical that you know that the federal estate tax threshold that applies to an estate is the threshold for the year in which the decedent passed away. Additionally, the estate value that will be compared to the federal estate tax threshold includes more than just the gross amount of the decedent’s estate. Taxable gifts and gift tax exemptions also figure into the calculation, which is why it is a good idea to consult an estate tax professional as you make your estate plan.
A fourth critical point regarding estate tax is that some estates that do not exceed the value of the federal estate tax threshold for the year in which the decedent died will nonetheless have to file an estate tax return. Several circumstances besides a value above the estate tax threshold can trigger the estate tax return filing requirement. For example, individuals who are not residents of the United States who own assets located in the United States may need to file an estate tax return. Likewise, estate tax returns must be filed by estates that are planning to transfer any remaining deceased spousal unused exclusion (the portability exclusion) to a surviving spouse.
The aforementioned estate tax basics are a small portion of all there is to know about the estate tax. To learn more about how to plan for federal estate tax in your estate plan, consult a Kansas estate planning attorney. Wichita attorney J. Joseph Weber is here to serve you and help you create or revise your estate plan to accomplish your estate planning goals. Please call our office at (316) 265-7802, or contact us online to arrange a consultation to discuss your Kansas estate planning questions.