“Let’s identify the major ones that normally need to be dealt with, as well as what should be done to either plan ahead or plan shortly after a death occurs.”
As the old saying goes, “Nothing is certain but death and taxes.” Many people don’t have the faintest idea of just how extensive those taxes can be, says Pittsburgh Post-Gazette in the article “Death and taxes—and taxes and taxes.” For all the headlines and noise about federal estate taxes, those are the last ones most of us have to think about.
The federal estate tax is a non-event, unless you belong to the upper one percent of wealthy Americans. The federal tax is paid, based on the value of the assets owned by the decedent at the time of death. It also includes any assets that are controlled by the decedent at the time of death. The first $11.4 million is now excluded from any taxes due for an individual, and $22.8 million for a couple.
Before the Tax Cuts and Jobs Act of 2017, this exemption was roughly $5 million, so many more people had to pay it. The levels are expected to go back to the pre-2018 amount at the end of 2025, unless the law changes before that time.
This is an important point to remember: the tax laws change, and anytime tax laws change, your estate plan should be reviewed to ensure that it is still going to work the way you intend.
In some states, like Pennsylvania, there are still inheritance taxes. Only six states have inheritance taxes, and only 12 states still have an estate tax. Your estate planning attorney will know what your state’s inheritance and estate taxes are and can help you plan, so that your family is not overly burdened when it comes time to pay these taxes.
Inheritance taxes are generally based on the value of the assets owned or controlled by the decedent. It is independent of the obligation to file an income tax return for the estate.
The decedent’s representative, usually the executor, is responsible for filling all state, local and federal income tax returns for the portion of the year, in which the decedent was still living.
Note that the tax returns involve federal capital gains tax and how assets purchased before death will be treated for tax purposes, when they are sold after death. Usually these are real estate and investments. There are a LOT of taxes to consider, each has a unique due date and there may be ways to pay some taxes that will have an impact on other taxes, depending upon the situation.
The key, and an estate planning attorney can help with this, is to create a plan that takes all the taxes into consideration and plans out a strategy to minimize taxes, ensure that everything is paid on time, and prepare for the taxes to be paid.
Ideally, all this planning takes place before someone dies, as part of their estate plan, so that their loved ones are not left figuring out all of the different tax liabilities and how to pay them.
Reference: Pittsburgh Post-Gazette (March 25, 2019) “Death and taxes—and taxes and taxes”
Comments