Whether you are planning your own estate, or are involved in the probate of an estate of a family member or loved one, you need to have a firm understanding of how taxes will impact the estate of a decedent. Failing to understand how federal and state estate taxes impact an estate could lead to losing a significant portion of your own estate to taxes or could lead to a considerable amount of confusion if you are involved in the probate of an estate of a family member or loved one. You are likely somewhat familiar with the concept of federal gift and estate taxes and how those taxes could impact an estate; however, do you know “Does North Dakota impose estate taxes on an estate” as well?
Will Federal Gift and Estate Taxes Be Imposed on the Estate?
When you die, you will leave behind an estate that is made up of everything you owned at the time of your death or in which you had an ownership interest. The same applies to anyone who dies. That estate must then go through the legal process known as probate. One of the purposes of the probate process is to ensure that any federal gift and estate taxes the estate owes are paid before the estate assets are transferred to the intended beneficiaries and/or heirs of the estate. Although federal gift and estate taxes can be complicated, in general the tax is imposed on the value of all lifetime gifts coupled with the value of the estate assets owned at the time of death that exceeds the lifetime exemption limit. The lifetime exemption limit was permanently set at $5 million back in 2012 but is adjusted annually for inflation. For 2016, the limit is $5.45 million. Therefore, gift and estate taxes would be imposed on the amount that exceeds $5.45 million. Because federal gift and estate taxes are paid by the estate, however, a beneficiary or heir of the estate does not have to worry about them as any tax due will have been paid before they receive their inheritance.
Does North Dakota Impose Estate Taxes?
All estates are potentially subject to federal gift and estate taxes if the value of the taxable estate exceeds the lifetime exemption limit in place at the time the estate is probated. Some estates, however, are also subject to state estate taxes. Each individual estate decides whether or not to impose a state estate tax on estates probated in the state. As of 2016, 15 states plus the District of Columbia impose a state estate tax with varying exemption limits as well as varying tax rates. The State of North Dakota is not among them. Therefore, if you are planning or probating an estate in North Dakota you do not need to worry about how state estate taxes will impact the estate.
Are There Any Other Taxes I Need to Worry about When Planning an Estate?
One other tax, the “inheritance tax,” could impact an estate that you are planning. Unlike estate taxes, both federal and state, which are paid by the estate prior to the transfer of assets out of the estate, an inheritance tax is paid after a beneficiary or heir receives the assets and is paid by the recipient. Fortunately, on six states (Iowa, Kentucky, Pennsylvania, Maryland, Nebraska, and New Jersey) impose an inheritance tax as of 2016. If any of your intended beneficiaries live in a state that collects inheritance taxes, however, you should factor that into your estate plan because it could diminish the value of the gift you leave to the beneficiary.
Consulting an Estate Planning Attorney
Because it can be difficult to figure out how state and/or federal taxes will impact your estate, or an estate you are probating, it is always best to consult with an experienced North Dakota estate planning attorney to ensure that you have a clear picture of the impact those taxes will have on the estate.
If you have additional questions about federal or state estate taxes, or would like assistance planning or probating an estate in the State of North Dakota contact the experienced estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.