What You Need to Know About the Federal Death Tax

what you need to know about the federal death tax

Table of Contents

Nobody gets out of this life alive. Unfortunately, you can’t take your money wherever you go next. Instead, you (or at least the people you leave behind) have to contend with The Federal Death Tax. It’s money the government will want from your estate after death, provided you made a lot of money while you were living. Most estates won’t have to pay it, because it’s only levied on the wealthiest of the wealthy.

According to the IRS, the exemption for 2015 is $5.43 million per person, meaning only assets over that amount would be taxed. If you’ve got assets beyond that, congratulations! But you still probably want to know how to avoid the tax, right?

Here’s what you need to know about the Federal Death Tax:

1) Out of 1,000 estates, only two will owe the tax

Most people aren’t exceedingly wealthy, so 99.8% of the estates in the US each year won’t owe any estate tax, according to the Joint Committee on Taxation. You might be worried about the tax, but in reality you probably won’t have to pay it. You can have a whole lot of money, and still not need to pay the tax.

2) There are big loopholes to avoid paying the tax

If you have the level of wealth that could mean paying the Federal Death Tax, there are still lots of ways to get around it. One of those is through trusts that can be passed down to others on a tax-free basis. Bloomberg reports that the grantor retained annuity trust (GRAT) is the best way to do that, but you have to do it right. Attorneys and accountants can help you legally avoid estate taxes.

3) Most countries tax estates more heavily than the US

While it might seem like the US Federal Death Tax takes a lot of money away from the estates of wealthy individuals who pass away, the reality is that the US doesn’t tax wealthy estates as heavily as many other countries. Isn’t it a good thing you live here, and not somewhere else? The money the US takes in estate and gift tax revenue is well below the average taken by the other 34 member countries of the Organization for Economic Co-Operation and Development. Wealthy individuals in the US who pass their estates down to their heirs actually get off much lighter than others.

4) It’s progressive, but it’s not that progressive

The Federal Death Tax is considered to be the most progressive part of the US tax code, but the code itself really isn’t that progressive. State and local taxes are actually regressive, helping the estate tax stand out. It’s considered progressive because it only affects those who have a higher ability to pay, and isn’t a tax that’s levied on everyone regardless of their income level. Essential programs like national defense, healthcare, and education are funded from the Federal Death Tax, but with some careful legal maneuvering, your relatives won’t have to pay it when you die.

At Paradigm Life we can customize a policy to fit your financial situation. Our expert Wealth Strategists are available to answer your questions and show you customized illustrations, outlining an individual plan of action to help you achieve your goals. Request a free virtual consultation, no strings attached.


Table of Contents

Related Articles

A Wealth Maximization Account is the backbone of The Perpetual Wealth Strategy™