Understanding Estate Taxes

After passing away, your assets are taxed before they are inherited. This is because the federal government imposes what is called a federal estate tax. Most states levy an estate tax ranging from 18 percent to 40 percent and will only apply to assets that are over a certain amount. Read on to learn more information about estate taxes.

How does the estate tax work?

An estate tax, often called the “death tax,” is a federal tax levied on the transfer or inheritance of assets after an individual passes away. This tax only applies to assets over $13.6 million in 2024.

Federal estate taxes are calculated based on the current fair market value of an individual’s assets. It is important to note, that this value is not based on the original value at the time of purchase.

Additionally, the surviving spouses are not subject to federal estate taxes due to the unlimited marital deduction.

Which states have an estate tax?

Currently, there are twelve states and the District of Columbia that have an estate tax. Oklahoma, along with 38 other states, does not have an estate tax. However, the federal estate tax will apply to Oklahoma residents with large enough estates.

The federal estate tax exemption of $13.6 million is portable meaning it can be passed from spouse to the other. If an estate exceeds the federal estate tax exemption, it is subject to a progressive estate tax. The top rate is 40 percent.

Here is an example from smartasset.com:

Let’s say your estate is worth $22.43 million and you are not married. Subtracting the $13.61 million exemption, you have a taxable estate of $8.82 million, placing you in the top tax bracket. You owe $345,800 on the first $1 million. You also owe 40% of the remaining $7.82 million, which comes out to $3.128 million. Add back the base payment and you’ll get the total tax burden, which is $3,473,800.

To find out which of your assets should be calculated, and how to find your value, take a look at the IRS Form 706 for more details. More importantly, reach out to a qualified tax professional if you have more questions.

Expert Estate Planning in Oklahoma

Get started with your estate planning with help from an expert! With over 35 years of experience, attorney Kevin L. Miller, PC provides estate planning, probate, and elder law for all Oklahomans in a welcoming and comfortable environment. If you are in Oklahoma, reach out to Kevin L. Miller, PC today! Call (405) 443-5100.