Estate planning can feel grim, not least of all because you are attempting to make plans for how to take care of your beneficiaries after you are gone. Perhaps the grimmest of all considerations might be the concern as to whether the government will attempt to tax your estate in the event of your death, thus inherently limiting the assets that can be distributed amongst your loved ones.
The estate tax says that any value over the current year’s exemption amount can be taxed by the government. Federal estate tax exemptions can change yearly. And each state may have different estate tax laws across the country.
In 2022, the US government sees that any individual’s estate valued at less than $11.7 million is exempt from federal estate tax. Married couples’ estates can be exempt for up to $23.4 million.
Does Colorado Have Estate, Inheritance, or Gift Taxes?
Colorado does not have an estate tax, an inheritance tax, or a gift tax. Only a dozen states across the country have an estate tax at the state level. But even for those states which don’t have their own estate taxes, their citizens may still be liable to federal estate taxes if their estate was particularly wealthy.
While Colorado does not have an inheritance tax, if you are inheriting something from an estate established in another state, those assets may be subject to that particular state’s inheritance tax laws.
What is the Death Tax?
There is no such thing as a ‘death tax’ in Colorado or America. The term death tax is not official and is mainly used by those who strongly oppose taxation of any kind. The term has a scare value to it that catches your attention, is all.
When someone mentions a death tax, they are usually referencing inheritance or estate taxes, as they only go into effect after the death of those in charge of the estate.
How Best to Avoid Estate Taxes?
Across America, very few taxpayers ever need to concern themselves with paying estate taxes to the IRS. Partly this is because they’ve kept their estates at a level that rules them exempt, but also, it is because many wealthy estates have found ways to protect their assets from estate tax.
One such option for wealthy estate owners is to put some of their assets into an irrevocable trust. This act will give up ownership of the assets in favor of your beneficiaries, defending them from taxation and probate court.
People in Colorado can also gift thousands of dollars worth of assets yearly to their loved ones, free of taxation. Donating to a tax-exempt charity through a trust can also be a viable option. Some may opt to establish a family-limited partnership, which can make heirs your partners. To better understand how to defend yourself from the federal estate tax, please speak to an estate planning attorney. Contact our law firm today at (720) 420-1039 to learn more about how we can help you with your situation.