There are several taxes that can impact your estate plan and the assets that you transfer to the next generation. To maximize the assets that you leave it is important to understand the relevant taxes, both on the state and federal level, and possible strategies you can utilize.
Federal Estate Tax
The federal estate tax can reach up to 40% depending on the determined value of assets in the estate. However, the federal estate tax applies only to the value of an estate of a single person that is worth more than $13.61 million in the 2024 tax cycle. This value doubles to $27.2 million for married couples. Less than 1% of adults in the United States leave behind taxable estates under the federal estate tax.
Like majority of states, Wisconsin does not have an estate tax.
Gift Tax
The gift-giver is responsible for paying the gift tax, however there is an annual exclusion limit before the gift tax applies. In 2024, the federal gift tax annual exclusion limit is $18,000, so you can gift that amount from assets in your estate to any number of individuals without triggering the gift tax. The best way to avoid the gift tax is to gift below the exclusion limit.
On the state level, Wisconsin does not have a state gift tax.
Inheritance Tax
An inheritance tax is a state tax, it is paid out of your assets when you die and then the remaining assets are distributed to your beneficiaries. Wisconsin does not have an inheritance tax.
Capital Gains Tax
Capital gains taxes apply to appreciation of any assets that an heir inherits through an estate. The tax is applied when the asset is sold for gain, not when the heir inherits the asset. The taxable income is determined when subtracting the original cost basis from the sale price. When inheriting, the IRS applies a stepped-up cost basis, determined the original cost basis by the asset’s value the day it was inherited. Under the capital gains tax, you do not automatically pay taxes on any property that you inherit, instead you owe capital gains taxes on any gains that asset made since you inherited it.
Strategies
- Gift assets to heirs during your lifetime.
- As long as your gift to a single person does not exceed $18,000, you will not trigger the federal gift tax. On the other hand, tuition payments made directly to an education institution or medical payments made directly to an institution are not subject to annual exclusion limits and can help decrease your taxable estate.
- Move assets to an irrevocable trust.
- An irrevocable trust allows you to move assets out of your taxable estate during your lifetime and can help avoid taxes. The transfer of assets to an irrevocable trust is permanent so you need to be certain about the transfer before completing it.
- Set up a Qualified Personal Residence Trust (QPRT).
- A QPRT allows you to reduce your taxable estate by putting your home into a trust. You can continue to live in your home after setting up the QPRT, and after you pass away, the trust beneficiaries will inherit the property.
Contact a Wisconsin Estate Planning Lawyer
An experienced estate planning lawyer in Wisconsin can advise you on the best strategies to maximize the value of your assets when they are passed on to the next generation and ensure that your generational wealth is preserved. Attorney Konstantakis has over 28 years of experience and will ensure that your future is protected.
