Who needs to worry about estate taxes in Arizona?

On Behalf of | Nov 8, 2021 | Estate planning

You need information about many different matters to craft your estate plan. You need up-to-date information about your assets and debts. You also need to understand the relationships you have with the people you love and that they have with one another.

Estate planning can sometimes be as much about protecting your beneficiaries from one another as it is about leaving a meaningful legacy. Most people recognize that conflict among their beneficiaries will likely reduce the value of their estate, as probate proceedings could consume tens of thousands of dollars worth of assets, if not more.

There are other matters that could also affect what your loved ones inherit. Your debts when you die will play a role, as will any state taxes that might apply to the assets you leave behind when you die. Will your loved ones need to worry about estate taxes?

Arizona does not tax your estate or your loved ones’ inheritances

As someone planning an estate in Arizona, you will be happy to learn that the state itself does not assess either an estate tax on the property that you leave behind when you die or an inheritance tax on what your loved ones receive. However, it is possible for federal estate taxes to potentially reduce what your loved ones receive.

The federal estate tax is progressive. The greater the amount that your estate exceeds the exemption threshold, the greater the tax rate. You could potentially have as much as 40% of your total estate value going straight to the federal government. There is currently the possibility that the threshold, which is over $11 million, could drop to less than half of that.

Monitoring changes to estate tax law is important for those leaving behind substantial assets like a ranch, investment properties or a business. 

There are other factors that will influence your estate as well

Your personal debts and even the kind of medical benefits that you received before you die can impact the value of your estate. Creditors and even Medicaid can bring claims against your estate that have priority over the claims of your heirs. Careful planning can reduce those risks and maximize what you leave for the people you love.

Understanding how taxes, death and other financial obligations affect your legacy can help you take the right steps when planning your estate.