Wisconsin Inheritance Tax: Estate Planning Tips

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Paul Sundin, CPA

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Due to the fact that different states may have different inheritance and estate tax laws, people often get confused and may even lose up to 40% of their estate to taxation without a thorough approach to estate planning.

While Wisconsin is one of those states that don’t have inheritance and estate taxes, there may still be cases when a Wisconsin resident may become responsible for paying a tax due as an heir.

In this article, we shall talk about the nature of inheritance taxation and estate planning in Wisconsin.

When a Wisconsin resident has to pay the inheritance tax

Wisconsin does not have an inheritance tax. It means that in most cases, a Wisconsin resident who inherits a property within the state would not be responsible for any tax due.

However, there are 2 cases when an inheritance can become subject to taxation:

  • If a Wyoming resident inherits a property, cash, or another estate from someone who lived in another state, they will owe the inheritance tax if that state has it;
  • If the inherited estate exceeds the federal estate tax exemption of $12,06 million, it becomes subject to the federal estate tax even though Wisconsin does not have such tax also.

The federal estate tax has a progressive scale and may reach as high as 40% in certain cases. 

That is why it is so important to be very careful with estate planning, even if you live in a state that does not have inheritance and estate taxes, especially if you have a sufficient estate.

Gift tax as a part of estate planning in Wisconsin

Wisconsin is also one of the states that don`t have a local gift tax. It means that living in Wisconsin, you can gift away a significant part of your taxable estate and ease the tax burden for your heirs.

However, it is still essential to remember the federal gift tax that applies to all U.S. residents. 

The good news, the federal gift tax has an annual exclusion amount of $16,000 per recipient. It means that you can transfer $16,000 worth of your estate to as many people as you wish every year.

Suppose you have 2 children. It means that starting from this year, you can reduce your taxable estate by at least $32,000. The exclusion amount doubles for a married couple. It means that 2 parents can gift away up to $64,000 of their estate if they have 2 children. And such gifts can be done every year.

In case you have a sufficient estate, the earlier you start planning and taking advantage of Wisconsin`s local gift taxation, the more you will manage to “shave off” and protect from the federal estate taxation.

The absence of inheritance, estate, and gift taxes make Wisconsin one of the most tax-friendly states. However, you should still be cautious in case you have a sufficient estate or may inherit property from a resident of another state. In this case, it is essential to start estate planning as soon as possible and address professional assistance to avoid the pitfalls of federal taxation and preserve your legacy for the heirs.  

Estate tax planning

Estate taxes are imposed on the assets left behind after a person dies. The amount that is subject to this tax depends on the value of the deceased’s assets. In general, the tax is calculated on the fair market value of the estate. It is therefore not based on the original purchase price. As a result, any appreciation in the value of an individual’s assets will be taxed. Although the estate-tax system is unpopular with many, it is thought to produce substantial funds for the nation.

The estate tax has become one of the most important elements of estate planning. Its effect on heirs is immense. In the past, wealthy families used trusts and other methods to shield their assets from the estate tax. Today, however, most people choose to pass their assets to their children and grandchildren. The tax does not apply to inheritances made to grandchildren. Instead, it applies to the assets left to beneficiaries who are under age 25.

While the federal estate tax affects the wealthiest 0.1 percent of American households, only the richest 0.1 percent pay it. In addition to wealthy individuals, small businesses and farms do not pay the tax. Moreover, the estate tax is a major burden for those who are not able to pay it. So, the question is: How can I lower the taxes owed by my heirs? The federal estate-tax affects about five million Americans.

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Gilbert, AZ