One thing many people worry about when considering their estates is how much of their assets will be lost to estate taxes. Luckily in Texas, there isn’t an estate or inheritance tax, but that doesn’t mean federal taxes won’t come into play. Chances are, you’re in luck on the federal side too since the vast majority of estates don’t face federal estate taxes.
The Joint Committee on Taxation report says that less than one percent of estates in the country meet the requirements for the federal estate tax. The reason that only around two people in every 1,000 end up with enough assets to qualify for the federal tax is because the exemption is so high. The estate has to be worth $5.43 million or higher as of 2015, and double that for a married couple, for federal taxes to come into play.
Even when federal taxes are in play, says the Urban-Brookings Tax Policy Center, the taxes are unlikely to wipe out the entire estate. Most estates end up paying a sixth or less of their total value — admittedly, that percentage calculates into a high dollar amount when dealing with millions of dollars, which is why owners of larger estates often take advantage of trusts and other documents to protect some assets from taxation.
Estate taxes are rarely owed by small businesses or estates that involve family farms. In 2013, says the Urban-Brookings Tax Policy Center, only around 20 such estates across the entire country owed taxes. While no one wants to see any part of their assets tied up in taxes, it’s notable that the United States estate tax is lighter than many countries with similar economies. Still, there are ways to protect your heirs against such taxes, even after estate administration has begun.
Source: Center on Budget and Policy Priorities, “Ten Facts You Should Know About the Federal Estate Tax,” Chye-Ching Huang and Brandon DeBolt, accessed April. 17, 2015
