While our estate planning attorneys at Geyer Law do not offer tax advice, instead working in concert with our clients’ tax professionals, we thought a seasonal reminder might be in order as the calendar year draws to a close. (Yes, some of our business owner clients have adopted a fiscal year, but the calendar year governs individual tax reporting. The estate tax year begins on the day of the estate owner’s death; the executor can file an election to choose a fiscal year instead).
There are five kinds of taxes that can potentially affect your estate plan:
- Income tax
This applies to income earned by an estate or trust. Estates that earn more than $600 in a year must file a tax return, and may need to pay quarterly estimated taxes.
- Gift tax
Whenever you transfer property to someone else while receiving nothing or less than full value in return, or when you lend money interest-free or at a reduced interest rate you have made a gift. Gift tax returns are due by April 15 following the year in which the gift was made. In 2023, the annual gift tax exclusion (the amount you can give without needing to file a gift tax return) is $17,000 per gift ($34,000 per gift for a couple; next year the exclusion will be $18,000). The gift tax is not due immediately; the amount gifted is first subtracted from the estate tax exclusion upon your death.
- Estate tax
As we explained in this Geyer Law blog earlier this month, the estate tax, which applies to the transfer of property at death, affects only a small minority of U.S. taxpayers. For those concerned with the impending reduction in the estate tax exemption after 2025, trust and charitable planning should be carefully considered now.
- Inheritance tax
An inheritance tax is a state tax paid by the recipient of property or money from a deceased person. Since Indiana repealed the inheritance tax, you would not need to file an inheritance tax return unless you received items from an Indiana Resident who died more than ten years ago
- Generation-skipping transfer tax
This is a federal tax that applies to transactions that skip a generation, meaning that property is transferred to someone at least 37 ½ years younger than the decedent.
While several of these taxes may not apply to you this season, this is the season to think about those that might apply in future.
– by Ronnie of the Rebecca W. Geyer & Associates Blog Team