What taxes will the beneficiary of my life insurance policy have to pay?
The beneficiary will not have to pay income taxes because life insurance proceeds are exempt from the federal income tax. Without careful estate planning, however, your life insurance proceeds will be included in your taxable estate.
Does the State of Texas have an estate tax?
No. The State of Texas does not have an estate tax. However, in 2024, any estate greater than $13,610,000 per individual, or $27,220,000 for married couples, will be subject to federal estate tax.
Does the Federal Government have an estate tax?
Yes. Federal estate taxes are calculated based on the size of your estate. Think of it this way: if you were to place everything you currently own into a big pot and put a value on it, what would that value be? In determining the size of your estate, all assets in which you own an interest must be included, including life insurance, assets held in a Living Trust, qualified retirement plan benefits, and IRAs. The current federal estate tax starts at 18% and gradually increases to 40%.
How is federal estate tax calculated? Am I at risk?
The exemption equivalent amount is the total amount of property that may be given to anyone during life or upon death without incurring any federal estate or gift tax. If your estate is less than the current exemption amount of $13,610,000, no estate taxes will be due upon your death. Please note the exemption equivalent amount will be sunsetting and is set to drop to $5,000,000 in 2026. What does this mean? Beginning in 2026, your estate in excess of $5,000,000 will be subject to estate tax.
Can I save on estate taxes if I’m married?
Yes. You can leave your estate either directly to your spouse or in a qualified Trust for your spouse without any federal estate or gift tax consequences. Any property left directly to your spouse will be subject to estate tax upon your spouse’s death, together with your spouse’s own property. Tax savings options include lifetime gifts, Bypass Trusts, or Life Insurance Trusts.
How much can I gift to someone each year without paying gift tax?
Gifts are subject to the gift tax unless they have a value less than the annual gift tax exclusion, which is currently $18,000 per recipient per year, or unless he or she qualifies for the medical and tuition exclusions. In addition, the value of any gift made to a charity under a person’s Will passes without any estate tax being imposed on the value of that property.