How will heirs be affected by the change of tax rules on estates under Sensible Tax Reform?
All heirs will receive their entire share of the estate, without reduction for estate taxes. They will receive not only their share of the estates $5 million exclusion (which will not be taxed at all) but also their share of the remaining estate, which may be subject to income taxes. For example, consider a $35 million estate with $10 million of charitable donations, a spouse receiving half of the estate and two children each receiving one fourth: Net estate = (Total estate) – (Charitable donations) – (exclusion) = $35,000,000 – $10,000,000 – $5,000,000 = $20,000,000 None of the estate will be taxed under Sensible Tax Reform. In this example, the surviving spouse will receive half of the net estate ($10 million) plus his/her share of the exclusion ($2.5 million). $12,500,000 will thus be inherited but only $10 million will be subject to income taxes by the spouse. Similarly, each of the children will receive $5 million plus one fourth of the exclusion ($1,250,000) for a total of $6,250
