WILL MY HEIRS HAVE TO PAY TAXES WHEN I DIE?
There are different types of taxes that can affect an inheritance!
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Estate Tax
An estate tax is a tax on the value of the decedent’s property and it is paid by the estate and not the heirs. An estate tax could reduce the value of the inheritance. The IRS currently exempts estates of less than $11.58 million in 2020.
Inheritance Tax
An inheritance tax is a tax on the receipt of assets from someone who died. For federal tax purposes, inheritance generally isn’t considered income and is not taxable. But there are a few states where inheritances can be taxable. Estate taxes are typically paid prior to an inheritance being distributed, so it is important to find out the details of any inheritance.
Capital Gains Tax
A capital gains tax is a tax on the proceeds that come from the sale of a property. The value of the inherited property is determined on the death date of the decedent. Possible capital gains taxes will be determined after that date and is only applicable when the property is sold. The Internal Revenue Service (IRS) only cares about any capital gains tax that could be potentially owed after a property is inherited.
ESTATE PLANNING, TRUSTS, AND TAXES
The basic goal of estate tax planning is to transfer as much of your property with as little taxation as possible. Estate planning includes the bequest of assets to heirs and the settlement of estate taxes.
There are many different strategies that are utilized to reduce the taxes on an estate. One of the most common is to set-up a Trust. A trust is a fiduciary arrangement that utilizes a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.
While there are dozens of different types of trusts, in order to remove assets from an estate to avoid the estate tax, the trust has to be called “irrevocable”. This means that at some point, you no longer own the assets placed in the trust (the trust does).
What type of trust would be best for you depends on your personal situation and your goals? An estate planning attorney can help you determine the best options available and put together the right plan that will meet your goals.
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In addition, find out more from our list of Estate Planning Resources and Frequently Asked Questions.
How MVP Law Group can help!
Problems can occur when people don’t correctly coordinate all of the aspects of passing on their estate. If you have a well-drafted estate plan in place, you will ensure that your estate passes to whom you want, when you want, and is carried out in your chosen manner. With the right estate plan, you can rest assured that your family won’t have to endure a public process and face high probate costs. The government will also not be able to take a large portion of what you’ve spent a lifetime building. But you need to be aware of the many options that exist in estate planning – and you must choose your estate planning attorney wisely.
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We offer a wealth of free information and free estate planning seminars in your area. Explore the resources available on our website, join us for a free Estate Planning Seminar, and request a Free Consultation.
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We want you to feel confident about the choices you make, and we can be your guide on the path toward preserving your family’s future.
