Posted By Larry Tolchinsky on April 14, 2015
Before tomorrow’s April 15th deadline, people will be making financial decisions, like depositing funds in an IRA (individual retirement account), in an effort to pay less federal income tax. Some of these tax decisions can also be used as part of an estate planning tax strategy (other tax strategies that can have duel usage, include investing in a life insurance policy or investing in an annuity). (Also see “2014 Year End Estate Planning.”)
Taxes Payable At Death
Taxes are a part of life, and the after life (since they are paid by your estate). Common taxes that must be paid and that are related to someone dying, include:
- Federal income taxes on income earned in the year of the death;
- Federal income taxes on income earned by the estate during the estate administration;
- Gift taxes;
- Capital gains tax on assets sold in the year of the death;
- Federal estate tax.
Proper planning with an estate planning lawyer can limit the amount of taxes that must be paid from your estate. The benefit to this planning, of course, is to increase the amount that your beneficiaries will inherit from your estate.
What’s Happening With The Death Tax?
The federal estate tax is also known as the federal “death tax” and it’s always been controversial. It is a tax calculated on the estate’s net taxable assets, which is tallied by deducting allowable deductions from the total estate value, aka the gross estate (the definition of “gross estate” is not a simple calculation and it should be explained and calculated by a lawyer or accountant since certain assets owned at the time of death, and some transferred prior to death, for example, are included in calculating this figure).
If a federal estate tax is due, then the personal representative of the estate (aka executor) must file the federal estate tax return (Form 706) and determine what assets will be used to pay the tax.
This estate tax is different from an income tax that may be due by the estate.
Right now, there is a great deal of news coverage over a joint Senate and House effort to repeal the federal estate tax. The Death Tax Repeal Act Of 2015 would end the current tax levied on an estate.
Whether or not it will become law is debatable: Congress may pass the Death Tax Repeal Act but President Obama has already announced that if the bill reaches his desk, he will veto it. The President’s position is not to repeal estate taxes
Estate Planning Is For Everybody — It’s Not Just for the Rich
Given the changes that happen in tax laws each year on both the federal and state level, as well as the changes that happen regarding the federal estate tax, it is important to have estate plans in place and reviewed annually. This is especially true if you have any concerns about maximizing how much inheritance you pass to your loved ones or your favored charities.
A Florida lawyer who handles estate planning and/or probate matters can help you determine the best route for you to take in estate planning – from drafting and finalizing a Last Will and Testament, to choosing between other asset transfer vehicles, like IRAs, Trusts (revocable, irrevocable, life insurance), etc.
It it surprising to learn how many people think they don’t need to have an estate plan in place — it’s not just something for the rich and the wealthy to consider – estate planning also includes planning for health issues – like who has the authority to make medical decisions for you or do you want certain measures taken to keep you alive, etc.
Also, life insurance policies, including burial insurance, can be purchased on many kinds of budgets that can provide for surviving families; and establishing trusts for minor children so they can go to college is always a good thing to consider – no matter how small your estate may be.
Finally, setting up an estate plan does not have to be expensive or complicated. It may not take that much time, either. And while most people do procrastinate about their estate plans, most people don’t want to pay, or don’t want their family to pay, any more in taxes than they have to — so maybe tomorrow’s Tax Deadline is a good incentive to get your estate plan in place!