If you are in the middle of setting up an estate plan, or if you are in charge of a loved one’s estate and they recently passed away, there are many issues you need to take into account. However, it is important to review issues related to estate taxes, such as filing an estate tax return (if necessary). Sometimes, estate tax returns are not required, but if you are dealing with an estate that has significant assets, you need to carefully examine this issue.
Failing to review estate-related tax matters can have harsh consequences, not only in terms of financial penalties but stress and even conflict within a family.
Reviewing the value of an estate and tax matters
According to the Internal Revenue Service, estate tax returns are often not necessary for very simple estates with modest assets. However, if an estate’s value exceeds $11,580,000 in 2020, an estate tax return is required. In 2021, this amount increases to $11,700,000. When determining the value of an estate, the IRS includes prior taxable gifts and combined gross assets, such as real estate, business interests, cash, investments and other types of assets. After determining your gross estate, you should look into potential deductions, such as passing down property to charities.
Reviewing fair market value and estate taxes
The IRS states that when determining the value of an estate, assets are evaluated based on the fair market value (not what you paid for them when you initially acquired the assets). It is crucial to carefully pore over all of your assets and plan ahead for the potential impact of estate taxes. Moreover, certain strategies can reduce the tax consequences associated with an estate plan.