Montana does not impose an inheritance tax on its residents. However, there are cases when inheritance comes with a certain level of fiscal burden.
Unfortunately, people often get caught by surprise with a tax due in this case. That is why in this article, we decided to cover all possible scenarios when a Montana resident would have to pay a certain tax on inheritance and how to minimize the risk.
Inheritance and estate taxes in Montana
The most common case when a Montana resident has to pay inheritance tax is when they inherit property from one of the states that still collect those taxes.
Inheritance and estate taxes often go hand-in-hand as they both apply to the estate of the recently deceased. Mainly that is why they are always referred to as “Death Taxes.”
An estate tax is levied before the inheritance is transferred to heirs. The inheritance tax comes after.
Although Montana has neither inheritance nor estate taxes on the local level, the Federal Estate Tax still applies to all properties in the United States.
The Federal Estate Tax has an exemption of $12,06 million, which doubles for a married couple. Moreover, it changes annually according to the inflation rate and is tied to the year the person has deceased. In other words, for those who died in 2022, the federal exemption remains $12,06, while in 2023, it may already be different.
The Federal Estate Tax has a progressive scale and varies from 18% for a taxable estate part of up to $10,000 to 40% if the taxable part of your estate exceeds $1 million.
How to decrease a taxable part of an estate in Montana?
Montana residents can easily decrease the taxable part of their estate using the fact that the state has no gift tax. In other words, you can simply gift away a part of your property to your children, grandchildren, or any other heirs and therefore protect the overall estate.
However, there is a Federal Gift Tax that prevents people from simply gifting away million-worth shares of their estate at once, avoiding the Federal Estate Taxation.
Nevertheless, the Federal Gift Tax has an annual exclusion of $16,000 ($32,000 for a married couple). You can also make such gifts to as many people as possible.
It means that a married couple that has 3 children and 5 grandchildren can cut the taxable part of their estate by $256,000 every year without having to report those acts to IRS or affecting the lifetime exemption.
The absence of gift tax in Montana, as well as federal tax exemptions, allows you to easily protect your legacy for your future heirs. Addressing a professional advisor, you are guaranteed to get the most out of your estate planning and reduce its taxable part without any adverse side effects.