Will your estate face federal or state taxes after you pass away? The answer to this question is complicated. Taxes after death depend upon the value of your assets, who inherits, where you own property and the current federal tax law.
Federal estate taxes are based upon the value of a decedent’s estate. Currently there is no federal estate tax exemption level. Unless Congress makes a change in estate tax law, next year estate taxes will be assessed at the exemption level of one million dollars.
There are two types of taxes that may be assessed upon an estate at the state level: estate and inheritance. State estate taxes, are similar to federal taxes because they are based upon the value of a decedent‘s assets. There are only fifteen states that have an estate tax. Arkansas does not. Each state sets its own exemption level and tax rate.
Arkansas also does not assess an inheritance tax, which is the second type of tax seen at the state level. There are only seven states that have an inheritance tax. Of those seven states, Maryland and New Jersey are the only ones that have both types of state level taxes.
Inheritance taxes are based upon who the beneficiaries are. Spouses may inherit in all seven states without the estate facing an inheritance tax. Other inheritors such as children and domestic partners face different exemption statuses and tax rates in each of the seven states.
If your entire estate resides in Arkansas, you do not have to worry about your estate owing taxes at the state level. If, however, you own property in any other state, it is important to review the tax laws of that state to determine how the inheritance of your loved ones will be affected.
If your estate is susceptible to federal or state taxes in this year or may be in the future, it is important to work with your attorney on some tax reduction methods.