A. Unless your family counts among the wealthiest 2% of Americans, the estate tax probably won’t affect you. The federal estate tax is essentially a transfer tax on property including cash, real estate, and stock paid by the heirs.
Basically, you’ll need to file an estate tax return with combined gross assets exceeding the exemption limit of $11.4 million per individual in 2019, up from $11.18 million in 2018. According to the Internal Revenue Service (IRS), you may elect to pass on any of your unused exemption to a surviving spouse.
But don’t confuse the federal estate tax with inheritance taxes on property or money, which are state taxes that require the beneficiary—not the estate—to pay the tax.
The main difference between an estate tax for the ultra-wealthy and an inheritance tax on property or money imposed by some states is who is required to pay it.
- An estate tax is paid out of the deceased's assets prior to the distribution of the state.
- The inheritance tax comes into play after the executor of the estate has divvied up and distributed the assets to the beneficiaries. Each individual beneficiary is responsible for paying the tax.
What about inherited retirement accounts? We will discuss it in next blogpost.