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Most high-net estate holders know the federal government’s estate tax. What may come as a surprise, especially to those with ties to the District of Columbia, is that D.C. imposes its estate tax, which is separate from the federal income tax.
This lesser-known tax can significantly impact your estate planning strategies and the wealth you can pass on to beneficiaries. To ensure you aren’t caught off guard, we’ll tell you how it works, who is subject to it, and how to minimize its impact.
What is Estate Tax?
Estate tax is a tax imposed on the transfer of a deceased person's assets to their beneficiaries. It’s important to note that:
- In 2024, these taxes only apply to estates valued at $13.61 million or more at the time of death.
- These taxes are paid by the estate—not by beneficiaries. That said, the tax amount can reduce wealth passed to beneficiaries.
Regardless of the location of your estate, you will be subject to the federal estate tax if its value exceeds this $13.61 threshold. However, things change a bit if you have ties to D.C.
Breaking Down the D.C. Estate Tax Rates for 2024
The D.C. estate tax is imposed on those who pass with estates valued at more than $4.71 million. This estate tax is “graduated,” which means that the tax rate increases with estate value, ranging from 11.2% to 16%, depending on the estate's value above the exemption amount.
In other words, any portion of the estate that exceeds the $4.71 million exemption amount will be taxed at different rates based on value.
Here’s a quick overview of how tax rates apply to high-net estates in 2024:
Estate Value Tax Rate
$4,710,000-$5,000,000 11.2%
$5,000,000-$6,000,000 12%
$6,000,000-$7,000,000 12.8%
$7,000,000-$8,000,000 13.6%
$8,000,000-$9,000,000 14.4%
$9,000,000-$10,000,000 15.2%
$10,000,000+ 16%
Reducing D.C. Estate Tax Liability
If you have a high-net-worth estate and are looking for ways to reduce your D.C. tax liability, our experienced CPAs often explore these strategies with clients.
Estate Valuation
The first step is determining whether your estate is subject to the D.C. estate tax. In some cases, clients mistakenly believe their estate is worth more than it is, only to find out they are exempt from the D.C. estate tax. In other cases, clients underestimate the value of their estate—whether because they overlooked assets or did not consider appreciation over time. This is why working with our estate planning team is so essential. We will help you find creative (yet compliant) ways to reduce tax liability, prepare for the unexpected, and preserve your legacy.
Charitable Gifts
Charitable gifting offers the best of both worlds. Not only does this strategy help reduce the size of your taxable estate, it allows you to give back and support your chosen cause. By making charitable donations during your lifetime or leaving a portion of your estate to charitable organizations, you can potentially reduce your D.C. estate tax liability while positively impacting your community.
Trusts
Trusts are another strategic option that can remove certain assets from your taxable estate while allowing you to control when and how the assets are distributed. This complex process requires detailed recordkeeping, reporting, inventorying, and more. Our team of experts can help you navigate different kinds of trusts to determine which will most effectively minimize your D.C. estate tax liability.
Life Insurance
A robust life insurance policy can help offset tax liabilities by providing your beneficiaries with a tax-free source of funds to pay estate taxes and other expenses.
Marital Deduction
This provision allows you to transfer an unlimited amount of assets to your surviving spouse without paying estate taxes at the time of transfer. It’s important to note that this strategy does not eliminate estate taxes; it simply defers them until your spouse passes.
Don't Let the D.C. Estate Tax Diminish Your Wealth!
Are you looking for strategic solutions to reduce tax liability? We can help. With over 40 years of experience, our team of experts has the knowledge and expertise you need to navigate the complexities of the D.C. estate tax and develop a comprehensive plan tailored to your unique needs and goals. Contact us today!
