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What types of estate taxes exist?

On Behalf of | Aug 28, 2021 | Estate And Gift Tax Planning, Estate Planning |

Upon your death, the probate process begins to handle your estate. Part of the process will include paying debts. While you may leave your estate without any debt, your heirs may get a surprise when it comes to taxes.

The New Jersey State Bar Association explains some estates will have to pay different types of taxes at the state and federal levels. It typically will depend on the size and value of your estate as to whether you will owe such taxes. You can prepare for taxation by learning more about the types of taxation that may occur.

Federal taxes

You will have to pay a federal estate tax as a U.S. citizen, but the rules vary on what the government considers taxable, so you may end up not owning this tax. You may also have to pay a gift tax, which covers the transfer of assets when you gift items over a certain value to someone else. You may pay this while you are still alive.

Your estate may also pay a generation-skipping transfer tax. This tax occurs when you leave items to a generation two or more below you.

State taxes

The Official Site of the State of New Jersey explains you may also have to pay state estate taxes. The state does have an inheritance tax imposed on the value of the assets you leave and to whom you leave them. The state does not have an actual estate tax.

Estate taxes may or may not impact your estate after your death. You should plan ahead to pay them in order to help ensure you do not leave your heirs with a tax bill they cannot pay.