Planning for the Death Tax, Using Charitable Trusts in Washington, D.C.

People like to do things differently in our nation’s capital. That’s why the only district in the United States follows its own rules when it comes to tax law. Unfortunately for people who live in Washington, D.C., those rules also include an estate tax — or as most there call it, a death tax.

That death tax will apply if you’re a resident or even if you just own property there. If you live in D.C., then you already know how expensive it is. Preparing your estate for your heirs is the key to keeping your wealth in the family.

What You Need to Know About the D.C. Death Tax

You will have to pay an estate tax in Washington, D.C., if you’re a resident with more than $1 million in assets. You might have to pay one if you’re a non-resident who owns real estate or tangible property in the district worth more than that amount. Considering the cost of property in D.C., if you own property there, you’re going to have to pay an estate tax, most likely.

The tax doesn’t have to be paid on outright transfers to spouses or on anything left to charity. Other than those exemptions, the other options for reducing the overall burden are limited. The estate tax can reach as high as 16% depending on the gross value of the estate. Specific amounts for deaths occurring in 2016 and later are as follows:

Estate Value Tax Due
From $1 million to $1.5 million 6.4%
From $1,500,001 to $2 million 7.2%
From $2,000,001 to $2.5 million 8%
From $2,500,001 to $3 million 8.8%
From $3,000,001 to $3.5 million 9.6%
From $3,500,001 to $4 million 10.4%
From $4,000,001 to $5 million 11.2%
From $5,000,001 to $6 million 12%
From $6,000,001 to $ 7 million 12.8%
From $7,000,001 to $8 million 13.6%
From $8,000,001 to $9 million 14.4%
From $9,000,001 to $10 million 15.2%
$10,000,001 and over 16%

If you’re holding any appreciating assets in Washington, D.C., or if you’re a resident, you’re going to need an estate tax plan. D.C. has some friendly laws regarding charitable giving that can be used to get valuable tax breaks while also reducing the size of your estate.

Using Charitable Trusts in Washington, D.C.

In Washington, D.C., charitable trusts go a long way toward reducing your tax bill while also creating a legacy of giving. Any amount given to a charitable trust is something you can use to reduce your estate while not impacting your gift taxes. Charitable trusts in Washington, D.C.  have the following advantages:

  • Any amount given to charity is reduced from your overall estate.
  • Contributions do not impact either annual or lifetime gifting limits.
  • Using funds to purchase policies allows you to create a value that’s worth several times what you paid in.
  • The premium for the policy can also be written off on your individual taxes as a charitable gift.

Washington, D.C.’s tax structure is a double-edged sword. While it’s a high burden, it also inspires giving. At Howard Kaye, we regularly work with clients to create charitable trusts for a variety of causes. These trusts can reduce your tax costs, especially in Washington, D.C., while also funding a passion. For more information on using a charitable trust funded with life insurance, contact us at 800-DIE-RICH.