Has A Loved One Left Their Estate To You? Understand The Tax Implications


When a deceased person leaves behind their estate, understanding everything involved can seem overwhelming. If a loved one has left their estate to you, you know this firsthand. One of the major areas of confusion has to do with potential tax implications. Make sure you know what you could be facing.

$5.49M Is the Magic Number

Based on federal guidelines, $5.49M is the amount that sends an estate into tax implication territory. If the value of an estate equals, or exceeds, this amount, the estate will have to pay a 40% federal estate tax. Make sure you understand that the number represents the total value of the estate, not just the cash on hand. For instance, an estate with $200,000 in cash, $50,000 in jewelry and $5.3M in property will fall within this category.

States Collect Too

Unfortunately, tax implications don't start and end at the federal level. While the majority of states don't have this requirement, some do. At the state level, both the threshold and the tax rate vary. For instance, in Oregon, the threshold is $1M dollars with a rate between 10% and 16%, in New York, the threshold is $3.12M with a rate between 3.06% and 16%. Research the details in your state to get a better idea.

Who You Are Matters

Your relationship with the deceased will have an impact on the estate's tax status. If you're their spouse, property, in any form, left behind to you will be exempt from the tax requirement, even if it exceeds the federal or state threshold. However, if you're a sibling, child or someone else, this is not the case. It's important to note that if you're a spouse that is not a citizen of the United States, this benefit will not be enacted. 

Couples Get Double

Married couples can combine and carry over their tax break. For instance, say a father passed away years ago leaving behind $2.5M in property to their spouse. When the other spouse passes and leaves the estate to their child, not only do they get their own $5.49M in exemption, but they also get the $2.9M of unused value that was left over from the other parent (from the $5.49M threshold). The threshold for the receiver of the estate is then $8.39M instead of the traditional $5.49M.

These factors really just scratch the surface, as tax implications for estates can be a lot more complex. Avoid a mistake and ensure you're doing the right thing with the help of a probate law attorney


17 July 2017