Do I Have to Pay Estate Taxes on My Inheritance?

Receiving an inheritance in Wisconsin comes with many questions, including those about state and federal taxes. Fortunately for state residents, changes to federal tax laws in 2013 gave heirs a big break on how much tax may be levied against an inheritance.

The American Taxpayer Relief Act of 2012 (ATRA 2012) effectively ended inheritance and estate taxes for Wisconsin residents and drastically increased the threshold for federal taxes as well. Until the bill’s passage, Wisconsin estate taxes were directly tied to rates on federal inheritance taxes under what is known as a “pickup tax.”

Under the old law, Wisconsin “picked up” a portion of the credit for state death taxes allowed on the federal estate tax return (federal form 706 or 706NA). Because there is no longer a federal credit for state estate taxes on the federal estate tax return, there is no longer basis for the Wisconsin estate tax.

Furthermore, Wisconsin has neither an estate tax paid by the estate nor an inheritance tax paid by a recipient of a gift from an estate. 2013 Wisconsin Act 20 goes on to clarify the law, holding that unless the federal government makes changes to its own federal estate tax credit for state death taxes, Wisconsin does not have an estate tax.

While changes to federal law have effectively eliminated estate taxes for Wisconsin residents, all U.S. citizens will still have to pay estate taxes on inheritances of a certain size. For 2017, the estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016. That figure is expected to grow incrementally to keep with inflation.

Furthermore, the concept of portability means married couples can effectively leave just below $11 million to their heirs without paying an tax on the estate. In order to take advantage of portability, the surviving spouse must file Form 709 Estate Tax Return and complies with other requirements within nine months of the deceased’s passing.

Even if you do not have assets above the federal estate tax threshold, you still need to plan your estate to ensure an expedient and timely transfer of assets to your heirs. This can include creating a last will and testament or implementing some type of trust into which to place your assets. Without either of these two scenarios, it may be necessary for a court to appoint an executor to your estate and the process will drag out much longer than necessary.

Madison Trust and Estate Lawyers

The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.

Contact our office by calling (608) 268-5751 to schedule a free consultation or use our online contact form.