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Does your estate plan protect your legacy from taxation?

On Behalf of | Apr 14, 2022 | Estate Planning

Throughout your life, you will pay taxes on all of the money you earn and much of the property you acquire. Your tax obligations don’t end when you die. The executor of your estate will have to file a final tax return on your behalf after your death.

Your estate could also have tax liabilities. Estate taxes are among the more controversial taxes currently collected by certain states and the federal government. Only a handful of states levy an estate tax when someone dies.

Will you have to worry about estate taxes after your death in Arizona?

Arizona does not assess an estate tax

There are several kinds of taxes that can affect an estate plan or how much property you pass to your loved ones when you die. An estate tax reduces the overall value of your estate, sometimes by a significant amount. Your executor has to pay the estate tax out of the assets you leave behind before distributing what remains to your beneficiaries.

An inheritance tax is usually the responsibility of the beneficiary. They may have to report what property they receive from an estate and pay taxes on it. Sometimes, adults planning an estate will make large gifts to family members in their golden years. These strategic gifts are a way to minimize estate taxes the recipients may need to pay in gift taxes based on the value of what they receive.

The good news for those living in Arizona is that the state does not assess an estate tax, an inheritance tax or even a gift text. Only federal estate taxes and gift taxes will apply to what you leave behind when you die.

What are the federal estate tax rules?

For an estate to be subject to federal estate taxes, the total value of the property in the estate must be more than $12,060,000. The more the value of the estate exceeds that threshold, the higher the tax rate that applies to the property. The maximum federal estate tax rate is 40%, which could significantly decrease the impact of what you leave behind for your family members or charitable purposes after you die.

Proper planning for estate responsibilities, including taxes and debts, will make estate administration easier for your executor and reduce the liabilities that diminish your legacy.