One of the main purposes of creating an estate plan is to reduce the burden of your loved ones; but what if your plan creates an undue tax burden? That’s one of the top concerns of creating an estate plan as well as the reason many people avoid having one altogether. However, an estate plan is essential for anyone living in Arkansas regardless of wealth. If you’re concerned about how taxes may impact your Arkansas estate, keep reading to learn more about different types of death taxes and how you could be affected.
Inheritance Tax vs. Estate Tax
Although the terms are often used interchangeably, inheritance taxes and estate taxes are different. That may be because the two are often referred to as “death taxes” which may lead to confusion. However, each tax works differently.
Inheritance Tax
An inheritance tax is paid by the heir who inherits assets such as property or money. If applicable, the heir is responsible for paying inheritance taxes.
Estate Tax
While an inheritance tax is paid by the heir, an estate tax is paid directly from the estate before assets are distributed.
Are Inheritances Taxed in Arkansas?
Because there is no federal inheritance tax, some states implement one of their own; however, Arkansas is one of many states that has no inheritance tax. It’s important to keep in mind that inheritance tax laws apply if the decedent lived in a state with an inheritance tax.
Does Arkansas Have an Estate Tax?
Arkansas does not have an estate tax, although you may be subject to federal estate tax if the total value of the estate is above a certain amount. As of 2024, the value of an estate must be worth $13.61 million or more before federal taxes apply. If the value of the estate exceeds that amount, the federal government will collect between 18-40% before the assets can be distributed to heirs. Federal estate tax rates can change yearly, so it’s essential to review your estate plan every few years to ensure that your assets are protected. You can discuss strategies to minimize your estate’s tax burden with an estate planning attorney.
Other Taxes to Consider in Estate Planning
There are some other taxes that may impact the value of an estate such as income and property taxes. These taxes may impact your decision to give away assets or property during your lifetime or after your death. Because each situation is different and different types of taxes can be complicated, it’s best to go over your estate plan and make changes as necessary with an expert.
Whether you’re ready to start estate planning now or have concerns about how your estate can be impacted by taxes, the L. Jennings Law team is here to help. If your goal is to avoid tax burdens for your loved ones after your death, we can go over your current plan or help you start a plan that aligns with your wishes. We understand the impact of a well-crafted estate plan and we’re ready to start you on that path. Contact us today to start a discussion about your estate plan with the L. Jennings Law team.
