Estate planning allows you to prepare for the future and help ensure the carrying out of your affairs to your wishes. Part of that is planning for your loved ones to receive assets that may enable them to do certain things like go to college or purchase a home of their own after you are no longer here to help.
Taxes are a natural and important part of any functioning society, but that doesn’t mean they should be ignored. It is important to understand the implications of certain taxes and their potential impact on what you leave behind for your loved ones.
1. There is currently no estate tax in Virginia
Virginia is one of the states that does not currently levy an estate tax on the estate of any person who dies with assets situated within the Commonwealth. Virginia also does not have an inheritance tax or a state gift tax.
2. Virginia does have a probate tax
The probate tax is separate from estate, inheritance and gift taxes. It applies only to those assets passing through the probate process. The tax is assessed at $1 per $1,000 worth of assets, so a home valued at $400,000 which passes through probate will trigger a probate tax of $400.
3. There is a federal estate tax
While there is currently no estate or gift tax in Virginia, federal estate taxes will still apply to estates that exceed the federal estate tax exemption in effect in the year of the individual’s death. For 2022, as long as your estate is below the exemption limit of $12.06 million, you do not have to worry about the federal estate tax. If your estate exceeds this limit, you do have options for minimizing estate taxes. If it applies, the estate tax is assessed at 40% of the value of assets exceeding the exemption. If Congress does nothing between now and the end of 2025, the estate tax exemption will be reduced by about half beginning in 2026.
The estate tax exemption also applies to lifetime gifts, so if you want to do any gifting prior to death, you should seek the advice of a competent CPA or tax attorney on the best way to do so.