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Are estate taxes fair?

If your estate exceeds a certain value at the time of your death in Florida, your heirs will have to pay an estate tax on it. Some people claim that this is not fair because it taxes the assets twice. The argument goes that the decedent paid income tax on the money upon initially earning it, and therefore, it is not fair to tax it again when the heirs receive it. 

However, the Tax Policy Center cites data from a Treasury Department study conducted in 2014 that demonstrates that the logic behind that argument is flawed. The study found that almost half the fair market value of all estates consists of unrealized capital gains from investments or property sales. In many cases, the estate tax is, in fact, the first such obligation imposed on the assets.

If you leave an unsold investment or piece of property to an heir, the value of the asset depends not upon what you paid for it initially but rather its fair market value at the time of your death, which means that if your heir sells it for an amount equaling its current valuation, he or she will pay no capital gains tax on it. 

Estate taxes became news again in 2017 when the federal Tax Cuts and Jobs Act became law and increased the amount of the estate tax exemption. According to the law, this provision is temporary and should expire in 2025. However, Congress has a history introducing new legislation to not only preserve but increase exemptions like this prior to the expiration date. 

The information in this article is not intended as legal advice but provided for educational purposes only.

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