1. What Is the Estate Tax?
The estate tax, often referred to as the “death tax,” is a federal tax imposed on the total value of a person’s estate at the time of their death. It applies to everything you own or have interests in, including cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets.
2. Who Pays the Estate Tax?
Not everyone pays the estate tax. The tax only applies to estates that exceed a certain threshold. Let’s break it down:
Filing Thresholds for Year of Death (2024): If your net worth falls below these thresholds, you won’t owe any estate tax.
Individual: $13.61 million net worth
Married Couple: $27.22 million net worth (combined exemption)
HOWEVER.....if the Tax Cuts and Jobs Act (TCJA) expires after 2025, these thresholds become MUCH LOWER.......meaning many more people will be subject to the estate tax.
If you have a business that is worth a lot of money, that counts too! The IRS does not care if your net worth is liquid or not!
3. The TCJA Sunset: What You Need to Know
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced significant changes to the tax code, including estate tax provisions. However, many of these changes are set to expire after 2025. Here’s what’s at stake for a married couple with a net worth of $20,000,000:
Estate Tax Threshold After TCJA Sunset (2026):
Individual: Approximately $7 million
Married Couple: Approximately $14 million (combined exemption)
Taxable Estate Calculation:
Net Worth: $20 million
Exemption Threshold: $14 million (married couple)
Taxable Estate: $20 million - $14 million = $6 million
Estate Tax Calculation:
Tax Rate: Assume 40%
Tax Owed: 40% of $6 million = $2.4 million
Disclosures
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