Georgia Estate Tax: How 99% Can Legally Avoid [+IRS Hazards]

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Paul Sundin, CPA

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Georgia is a wonderful place to live. The state will assess different types of taxes that provide incentives to its residents. But does Georgia have an estate tax? Will take a look at that issue in this post.

Each state has different ways of assessing tax on its residents. Some get you with real estate taxes, while others may have high sales tax or income tax.

Georgia estate tax

Fortunately, Georgia is one of 38 states that does not assess estate tax against individuals. Even though there is no estate tax assessment, federal state taxes still exist.

I am unaware of any potential changes to Georgia state tax at this point. But be careful. Tax laws are always changing and you never know when Georgia will assess an estate tax in the future. We know that states are getting very aggressive with their tax regimes.

How does the federal estate tax and exemption work?

OK so now that you understand a little bit about Georgia tax law, let’s take a look at how the federal estate tax works.

In theory, it is not that complicated. But once it has put into practice it can be very complex.

The executor of the estate is in charge of administering the estate tax liability. This first starts with summarizing all assets of the estate. This includes real estate holdings, stocks and bonds, and even household and personal items like cars, planes, and boats.

The executor must obtain valuations of these assets. For some assets this is simple, but for many assets like closely held businesses this can be challenging.

Once assets are valued at fair market value, the next step is to reduce the estate by any liabilities including mortgages and other debt.

The final step is to further reduce the estate by deducting certain administrative and funeral related costs. The resulting net amount is then compared to the exclusion exemption amount to determine if any estate tax is due.

Georgia gift tax and inheritance tax planning

I’ve got more good news for you. Georgia does not assess and inheritance tax or a gift tax. This means that if you pass away in the state of Georgia your beneficiaries will not have to pay any tax on the inheritance. Also, if you gift away certain assets they are not subject to gift tax in Georgia.

The IRS does not have an inheritance tax. But many states do. So if you live in Georgia and you have inherited assets that were in another state, you could be assessed an inheritance tax. I know this seems counterintuitive, but a few states to have an inheritance tax. So be careful.

A gifted asset may be subject to Georgia gift tax after the giving party dies. The tax is computed after deducting funeral and administrative costs and comparing the net estate amount to the exclusion exemption amount.

The recipient of a gifted asset in Georgia is not subject to a Georgia gift or inheritance taxes. However, if the gift was made to a Georgia resident, the gift may be taxable. This article will explain the details of Georgia gift tax.

The tax is a complicated issue that is not fully understood by most people, even attorneys or accountants. The key concept is that a gift is a transfer, not full consideration. The tax is applied to monetary gifts that exceed the lifetime exemption limit.

Any gift or transfer of property that does not meet the exemption amount is subject to this tax. For example, an inheritance tax can be imposed on a monetary gift. The lifetime exemption amount for a Georgia gift or estate is $15,000 for each giver and recipient.

The Georgia gift and estate tax is an annual tax on transfers of property that do not receive the full value in return. If the value of a gift is less than the annual exclusion amount, the gift is not subject to Georgia gift and estate taxes.

A married couple can give up to $30,000 per recipient per year to a spouse. If the value of the gift is greater than the annual exclusion amount, the donor must file a gift tax return and pay any gift tax liability by April 15th.

Trust tax issues

There are several different types of trusts. Each of these types must file IRS Form 1041 annually. Whether the trust distributes funds to beneficiaries or not, all income and principal from the trust must be reported and claimed on the beneficiaries’ tax returns.

Any amount of income distributed to beneficiaries must be reported and the remaining income from the business must be declared. The beneficiaries can deduct the distributions from their taxable income. If no distributions are made, the remaining income must be reported.

Unless a beneficiary is given a tax exemption, trusts are responsible for taxes on their retained income. They can deduct up to 75% of taxable income but must allocate tax-free income to beneficiaries or pay the tax on the original investment.

This makes the tax liability of the trust higher than the beneficiaries’. The primary difference between taxable and non-taxable income is in how the trust distributes its money. The current beneficiaries have rights over the money in the trust, but the future beneficiaries are not.

A trustee’s annual income tax return must include information on trust accounting income. The TCJA has emphasized this need, as enacted by Congress, provides a reason to have separate trusts for individual beneficiaries. But while this is a common practice, it is still not universal.

There are some situations in which a state may tax a trust based on its resident beneficiaries. The enactment of Sec. 199A has made it more practical to set up separate trusts for individual beneficiaries.

Tax summary

Overall, Georgia is not one of the worst states when it comes to taxes assessed. All states will get you one way or another. Make sure you consider real estate, sales, and income taxes so that you have the complete picture.

Even though Georgia does not have an estate tax, make sure you do planning well in advance to mitigate any federal estate tax that you might have. This might not be a consideration of yours today, but when you include expected increases in real estate and overall investments you might find that you have a problem at some point in the future.

Just make sure you address your tax situation before it is too late. There are some strategies to implement once you have passed away, but your beneficiaries might not be up to speed on some of the strategies. So make sure to plan well in advance.

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