For many older adults, estate planning is as much about ensuring they leave something valuable for their loved ones as it is about protecting themselves later in life. You may have invested much personal effort in the process of selecting beneficiaries for certain assets and arranging for the smooth descent of your property.
Regardless of the planning you’ve done, personal obligations can reduce how much you have to pass to the next generation, a spouse or charitable organizations after your death. Your estate will typically have to pay your debts before distributing property to your family members. Taxes could also be a concern.
Obviously, there may be some income taxes due when you die, which your estate will need to handle. Some people will also have to address estate taxes or risk passing much less than they expect to their beneficiaries.
Does South Dakota impose an estate tax?
Most states in the country, including South Dakota, do not charge estate taxes. Regardless of how much property you have in your name when you die, the state of South Dakota won’t demand tax payments based on the assets you want to transfer to the next generation.
However, you are still subject to federal estate taxes if you have a lot of property in your name when you die. If the total value of your estate, which includes several years of gifts before your death, is more than $12,060,000, you may have to pay estate taxes. The higher the value of your estate, the higher the tax rate. Some estates are subject to a 40% tax rate.
How do you avoid estate taxes?
Careful planning is the best solution for those who don’t want a significant portion of their property to go into federal coffers when they die. The same resources while you are still alive, possibly by making certain strategic gifts, is a popular strategy. Transferring assets into a trust or arranging for their transfer directly to someone else’s ownership when you die could prevent them from contributing to the value of your estate and reduce your chances of triggering an estate tax.
Understanding how estate taxes work in South Dakota can help those starting the estate planning process or reviewing their existing plans for oversights.