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What You Need to Know About the Estate Tax

Staff Writer • Oct 18, 2017

One of the most unpopular taxes that exist is the estate or inheritance tax (commonly called the death tax!) The tax is based on the assets a person owns at the time of death. All citizens have an exemption from said taxes. The federal estate tax exemption is now $5,450,000 per person ($10,900,000 for a married couple!) Any assets owned above the exemption are subject to the tax, which starts at thirty-five percent. In addition, certain states such as New Jersey also have a state estate tax. Nineteen states and the District of Columbia still levy a tax at death. Fortunately, Arkansas does not have a state estate tax.

Given the large exemptions that are in place, most people do not have to be concerned with estate taxes.

If you have a larger estate (over $5,450,000) you still need to plan for the federal estate tax, which can tax at a bracket of thirty-five percent on amounts over the exemption. There are many estate planning options that can be used to reduce or eliminate estate taxes. Trusts, limited partnerships, and gifting are a few of the more commons options to consider. In the event you are married, the options are even greater as you want to make sure both the husband and wife’s exemptions are utilized. Proper planning is essential for larger estates.

Adam Williams is the managing partner at Farrar & Williams, PLLC, a law firm limiting its practice to trusts, estate planning, and elder law, located on the 2nd floor of the Bear State Bank building, 135 Section Line Road, Hot Springs, Arkansas, and can be reached at (501)525-4401 or at adam@farrarwilliams.com. The firm’s website is www.farrarwilliams.com.

14 Nov, 2022
Communicating with your family about your estate plan is a sensitive but important topic. The need for good communication between seniors and their adult children is important as the children often have a role in the estate plan (whether it be as Agent under a Power of Attorney, Executor under a Will or Successor Trustee of the Family Trust). In addition to the basic estate planning structure, the discussions can include topics including when the senior should discontinue driving his or her car, when the senior should consider moving to residential care, and a number of other difficult topics to discuss. In addition to the above talks, there is another kind of talk to be had with your adult children. That is the talk by the parents to the adult child about how the adult child should protect any inheritance the adult child receives from divorce or creditor claims. If the adult child receives an inheritance, and co-mingles it with his or her spouse, then the inheritance is usually split 50/50 if there is a subsequent divorce. This is a result that neither the parent nor the adult child ever meant to happen. They simply did not understand the complex rules pertaining to a divorce (which varies from state to state). An inheritance should not be co-mingled with the spouse, unless the marriage is very solid and mature. What does co-mingling mean? It means depositing any inheritance into an account titled in the name of the adult child and his or her spouse. Another example would be the adult child purchasing a new home with the proceeds of the inheritance and titling in joint tenancy with his or her spouse. In either of those situations that normally results in the daughter-in-law or son-in-law being entitled to one-half of the amount so co-mingled. Further, if an adult child has creditors that they may be attempting to avoid, the parent should be aware of this so as to possibly structure the inheritance to protect the assets. This is a critical talk to have with the adult child. If one of your estate planning goals is to keep your in-laws out of your estate (or to protect it from your children’s creditors) so as to preserve it for your children and grandchildren, you should have your estate pass in trust for your adult children in a manner that they have generous access but it cannot be co-mingled. This is a common estate planning goal and can be accomplished with proper planning. Wesley Harris is an associate attorney at Farrar & Williams, PLLC, a law firm limiting its practice to trusts, estate planning, and elder law, located at 1720 Higdon Ferry Road, Suite 202, Hot Springs, Arkansas, and can be reached at (501) 525-4401 or at wesley@farrarwilliams.com . Wesley can answer any questions you have about this subject.
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