The estate tax has long been popular fodder for political debate, and has often been the source of confusion for many taxpayers and their families. For individuals who are concerned about how the estate tax might impact their estate planning and their ability to pass wealth on to their heirs when they die, a basic understanding of the current estate tax law can be critically important. If your estate consists of real property, sizable life insurance policies, family farms or businesses, or any other valuable assets, you need to understand how the rules that govern Georgia estate taxes might impact you and your heirs.
Georgia’s Estate Tax Repeal
Georgia eliminated the requirement to file estate tax returns back on July 1, 2014, when it changed its existing laws and declared that it would no longer assess any estate tax levy. However, that change in the law did not apply to estates that owed taxes or penalties prior to the implementation of the new rules. That previous estate tax law remained in effect for estates in which the decedent passed away prior to 2005.
That old estate tax was typically referred to as a “pick-up tax” due to the fact that it was calculated as a portion of any due federal estate taxes. Georgia was similar in that respect to other states, which used similar methods to determine which estates owed estate taxes and how much they would be required to pay. Under that system, there was tax revenue sharing between the federal and state governments, so that the total federal estate tax obligation was reduced by the amount of the state’s pick- up tax.
Those pick up tax provisions were eliminated by federal law that went into effect on the 1st of January, 2005. That left states to choose to enact their own estate taxes, opt for an inheritance tax of some sort, or forsake the tax altogether. Georgia chose to forsake collection of the tax, though it would have gone back into effect in 2011 when the federal phase out of the pick-up tax was scheduled to end. When that didn’t happen, Georgia’s legislature eventually codified the end of the state’s estate tax.
Even the Federal Tax Probably Won’t Hit You
So, if Georgia no longer levies any estate tax – and has no inheritance tax either, then what about the federal estate tax? Well, thanks to changes Congress made to the federal estate law laws, there is a very good chance that your estate won’t be large enough to be subject to that tax either. For while the estate tax has been previously levied on estates valued at as little as $2 million, the tax today is only paid by those with estates valued in excess of $5.45 million. To put that into context, that’s very close to the tax structure used a century ago – though $5 million certainly went a lot further back then than it does today.
As the current estate tax structure stands, your estate won’t be subject to the tax unless it has a total value of more than $5.45 million when you die. That amount is currently expected to rise, since it is adjusted for inflation on an annual basis. And even if your estate ends up being valued in excess of that limit, the law only requires that it be assessed a tax on that excess amount above the $5.45 million. As you might expect, only a small percentage of estates each year ever qualify for that tax assessment.
What is That $5.45 Million Number All About?
Here’s the thing: when Congress last changed the estate tax rules, they didn’t actually change the tax rates. The estate tax is still one of the highest tax rates that you’ll find anywhere in the United States tax code, and is set at a whopping 40% at the high end of the estate tax tables. The good news though, is that the value of the estate is reduced by your lifetime exclusion. That’s an exemption of sorts, and it is currently set at $5.45 million.
That means that your estate will owe no tax on any amount less than that exemption. In addition, you are permitted to give away an unlimited number of gifts each year to different people, without any tax repercussions whatsoever. There is a caveat, however. Those gifts are limited to $14,000 per person annually, though your spouse can make a matching gift of that same amount. Along with the lifetime exemption, these gifts can help many people to more effectively ensure that their estate tax obligations are minimized as much as possible.
Will Your Estate Be Impacted?
For most people concerned about the estate tax, any worries are unfounded – at least for now. Obviously, laws are never eternal, and future Congresses or state legislatures could easily alter the exemption levels or tax rates to include many more estates. Those are things over which you have no control, however, so all that you can do is plan with today’s laws in mind while trying to ensure that your plan is strong enough to survive whatever changes the future might bring.
You might assume today that you have no need to plan ahead for estate tax implications. Perhaps your income or assets are low enough that you simply cannot foresee your estate ever reaching those levels. It is important to remember, though, that life insurance, retirement policies, farmland, businesses, and many other assets could all contribute to determining the size of your estate. Moreover, your circumstances are likely to change over time, which means that you could find yourself in an altogether different financial environment five or ten years from now.
At Fouts Law Group, LLC, our estate planning experts can help to ensure that you have a plan that adequately prepares your estate for all possible tax implications. We can help you to develop the strategies you need to protect and grow your assets over time, while protecting them from confiscatory taxes when you die. To find out more about how we can assist you with your estate tax issues, contact us online or give us a call at (678) 242-8344.