Depending on the value of an estate, the beneficiaries may have to pay taxes on the estate. This tax is referred to as an estate tax. As of January 1, 2015, you must file estate taxes with the IRS for any estate with combined assets of $5,430,000 or more.

Gross Estate

The amount of estate tax owed depends on the “gross estate” of the decedent. The gross estate is determined by an accounting of all items including (but not limited to) property, securities, cash, business assets, insurance policies, etc. There are deductions that can be claimed that would reduce the amount of the gross estate, this reduced amount is referred to as the “taxable estate”.

Inheritance Tax v. Estate Tax

Federal law imposes an estate tax. Each state has separate laws regarding inheritance and/or estate taxes.

An inheritance tax is imposed on the beneficiaries of an estate. The beneficiary is taxed separately based on the amount of their individual inheritance.

An estate tax is imposed based on assets of the estate as a whole, not each beneficiary.

Minnesota has an inheritance tax. As of January 1, 2015, you must file and estate tax with the State of Minnesota for any estate valued greater than $1,400,000. This amount will increase by $200,000 each year until it reaches $2,000,000 in 2018.

As with any large decision, it is best to meet with an experienced attorney in order to understand all your options. An experienced attorney will advise you of the best way to handle your estate, making it easiest for your beneficiaries upon death. An experienced attorney could save your beneficiaries thousands of dollars.