While delivering estate-planning presentations across Montana, Marsha Goetting, Montana State University Extension family economics specialist, saw a pattern among some attendees. When it came to understanding state and federal taxes after death, many people were misinformed.
Goetting said there was a time when the federal estate tax affected many Montanans and, as a result, tax minimization became a major goal for families in their estate planning. But now, the federal estate tax affects less than 1% of deceased persons’ estates because Congress increased the amount of the federal estate tax exemption and indexed the amount yearly for inflation until 2026.
During 2021 the federal estate tax only affects estates valued above $11.7 million. For married couples, the amount that can pass free of the federal estate tax during 2021 is $23.4 million.
Goetting also found that many of her presentation attendees believe there’s still a Montana inheritance tax on the value of assets the deceased passed to heirs.
“Montana passed a referendum eliminating the inheritance tax in 2001,” she said. “It does not matter if the heirs are Montana residents or if they live in another state or country. There is absolutely no inheritance tax on the Montana real and personal property – such as checking accounts, savings accounts, stocks, bonds and mutual funds – passing to others.”
Regarding property owned outside of Montana, Goetting said it depends on whether the property is real or personal. If a deceased Montanan had personal property located out of state, such as checking and savings accounts, certificates of deposit, stocks, bonds and mutual funds, those assets are subject to Montana law. There is no Montana inheritance tax on the value that passes to heirs, she added.
However, if a deceased person was a Montana resident and owned real property in another state, the real property is subject to that state’s inheritance tax laws. Nearby states of North Dakota, Wyoming, Idaho, Colorado and Washington also do not have an inheritance tax.
Because federal estate taxes are not an issue for most Montanans, Goetting recommends families place their emphasis on what they want their legacy to be for their children and grandchildren.
For example, a father who has two children from a previous marriage wants to provide not only for his current wife but also leave a legacy for his children. He wants his children to inherit the land that’s been in his family for generations. His concern, however, is that if he left the land to his wife that she could remarry and pass it onto her new family.
Goetting says the father could place the land in a trust, and the terms of the trust could require the trustee to pass all income to his wife during her life. Then, at her death, the assets pass to the father’s children. Because of the terms of the trust, the husband would assure his land will pass to his children after the death of his wife.
“If you are in a federal estate tax bracket are looking for ideas that minimize gift and federal estate taxes, contact your certified public account or attorney,” Goetting said. “Both professionals can help you achieve your estate planning goals.”