When it comes to estate planning, estate taxes are often one of those issues that can be more than a little confusing for many individuals and their families. While the estate tax has been an issue that has been much debated at the federal level in recent decades, it remains a thing of mystery to many Americans. A large number of Americans even confuse it with the inheritance tax, and sometimes use those two terms interchangeably. When you’re engaged in serious estate planning, however, it is important to have at least a minimal understanding about what the estate tax is and how it could impact your ability to leave a legacy for your heirs. When it comes to your estate planning efforts, there are a number of things that you should know about the Georgia estate tax.
Does the State Even Have an Estate Tax?
The most important thing to understand is that Georgia repealed its estate tax – which means that Georgia residents no longer have to worry about paying estate tax for estates where the decedent passed away after January 1, 2005. So, if you’re engaged in estate tax planning right now, or completed yours plan in the recent past, chances are that the federal estate tax might be your only concern. Of course, if you’re heard that Georgia has an estate tax, that might all be a little confusing. A brief history might help to clarify things and help you better understand how the state has dealt with this controversial tax.
The History of the Estate Tax at the State Level
Before 2005, the state of Georgia was like many other states; it had an estate tax that was based upon the federal tax. While the state levied the tax on its own, it was not an additional burden apart from the federal estate tax, but rather a “pick up” or “sponge” tax that consisted of some portion of that federal assessment. In practice, the various states each had their own tax laws that made use of an IRS state level estate tax credit to collect a certain part of the federal estate tax bill. Instead of adding to the estate’s tax obligation, this pick up tax simply sponged off the federal estate taxes owed, redirecting a portion of that tax bill to the state. It was essentially a tax-sharing system between federal and state taxation authorities.
That system was disrupted when Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which went into effect on January 1, 2005. That change in the law began a process that phased out pick up taxes, which led some states to simply pass their own estate tax laws that were separate from the federal provisions. Not all states followed this decoupling model, however, as many states did nothing and simply allowed the tax to disappear.
Georgia was among that latter group, and never bothered to pass its own version of the estate tax. Eventually, the legislature passed a repeal of the state’s estate tax, declaring that the state would no longer assess estate tax levies or require the submission of estate tax returns. Those provisions went into effect on July 1, 2014, officially bringing to a close the state’s experience with estate tax assessment.
So Are You Free from All Estate Taxes?
Despite the absence of any Georgia estate tax concerns, you may still have reason to be concerned about the possibility that your estate may still owe federal estate taxes. While that tax is only assessed on a small portion of estates each year, you don’t have to be super-rich to have your estate fall prey to its provisions. Of course, you won’t actually have to worry about paying that tax, even if your estate is large enough to be subject to its provisions, because it only gets levied after you die. Even so, estate taxes can reduce the value of your estate, and that could impact the type of inheritance you’re able to leave behind for your loved ones.
Under its current incarnation, the federal estate tax only affects estates with values that exceed $5.45 million, since everyone is entitled to an exemption in that amount. That number is scheduled to rise in the coming years, since it is indexed to inflation. Now here’s the thing: if your estate is worth less than that amount when you die, your estate won’t be assessed any estate tax, and your heirs and other beneficiaries will be able to receive their inheritances as you direct. Moreover, they’ll receive that inheritance with no income tax due and no inheritance tax.
If, on the other hand, your estate is large enough to be subject to the federal estate tax, then you have several options available to you. The first is to do nothing and just allow the government to tax the estate, reducing the amount of money available for distribution to your loved ones. The other option is to take affirmative steps now to protect your assets from the estate tax, using various estate planning tools like trusts, gifting strategies, and more.
Of course, to do that effectively, you need the assistance of competent and experienced estate planning professionals who can provide the guidance you need to ensure that your estate tax exposure is either mitigated or eliminated altogether. In Georgia, there’s one estate planning firm that residents can rely on for their estate tax and planning needs.
At Fouts Law Group, LLC, we know how important it is that our clients understand how these tax matters can impact their estate planning efforts. We work with you to assess every aspect of your estate plan, and can help you determine whether or not the estate tax could be a concern for your estate when you die. And then we can assist you with the development of a strategy that will provide maximum protection for your assets and your heirs. To find out more about the Georgia estate tax and learn how we can help you manage its impact on your estate, contact us online or give us a call at (678) 242-8344.
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