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Understanding estate taxes

Colorado residents may benefit from learning more about the facts concerning estate taxes. The federal government taxes all gifts, generation-skipping transfers and estate taxes. Gifts that exceed specific limits may be taxable during someone's lifetime or after their death. Transfers made during the lifetime are taxed when they exceed the exemption limits for taxable gifts. Transfers that exceed exemption limits after death may be subject to estate taxes.

Generation-skipping taxes may be added onto gift or estate taxes, but they may not be substituted for either. Individuals are permitted to transfer property before or death without paying any transfer tax, as long as it does not exceed the exemption limit. It may be worth noting that the amount of exemption used during the lifetime is deducted from the exemption amount available for estate taxes.

Due to unlimited marital deductions, transfers occurring between spouses during their lifetime or at death are not subject to transfer taxes. Since 2011, the estate tax exemption has been considered portable for estates worth $5.25 million to $10.5 million, and it enables a surviving spouse to assume the unused exemption left behind by a deceased spouse. The higher exemptions means that more people may not be subjected to federal estate tax. Some people may be required to pay the state's estate tax, but the amount owed is usually substantially lower than the federal taxes.

People who need more information about the laws governing estate taxes might benefit from contacting legal counsel. Lawyers may be able to assist with the administration of an estate. Lawyers may be able to help clients draft the documents properly so that all the devices are effective.

Source: American Bar Association , "Estate, Gift, and GST Taxes", November 12, 2014

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