Estate Tax Consequences After a Death
Today Your Legal Corner will provide information on "death and tax consequences."
Benjamin Franklin is credited with the famous saying, "In this world, nothing can be certain except death and taxes." At the time I am writing this, there are approximately 64 days till the annual income tax deadline of April 15th, 2015.
I am sure by now, most of us have commenced the process of diligently gathering documents needed to file a return and perhaps even may have booked that long over due vacation in anticipation of a pending income tax refund!
Either way, in order to avoid uncertain consequences, detailed preparation is key. This year, may I suggest in addition to filing your income tax; consider discussing the possible tax consequences of your will with an estate attorney and/or accountant. Then, if needed, revise accordingly.
Estate tax consequences
Generally, what has been written in the will controls the disposition of assets. In the event a will or a trust is silent, current default laws will govern. For example, in New Jersey, when estate tax issues are not addressed or a tax allocation clause is not written in the will, New Jersey and Federal apportionment statutes will govern how both federal and state taxes are paid.
In this instance, the estate would pay federal and state taxes due on probate assets, while the transferees of the property would be pay the non-probate. What are probate assets? Probate assets include property that is listed within the will. Non-probate assets pass outside of the will to include life insurance policies, jointly held real estate, and retirement plans to list a few.
Unless you are an accountant, an attorney who specializes in estate planning or well versed in tax laws, it is easy to become overwhelmed and confused. Still, when creating a will and contemplating consequences, it is prudent to be aware of what types of taxes may have to be filed after death.
Estate tax considerations
There are approximately seven possible tax considerations that may be due after death. The Federal Estate tax, which unless you are extremely wealthy and have an estate value over 5.43 million, will not be due. The second tax to evaluate as a possible transfer is the State Estate tax, which is due on estates with a value over 675.000. Important to note is that certain gifts could also be taxed.
The fourth tax transfer to review is called an Inheritance tax. This tax is paid by any beneficiaries who are not categorized as Class A. Class A beneficiaries include: spouse, children, grandchildren, parent, direct descendants, stepchild, or a domestic partner. The amount of the tax due will vary depending on the size of the inheritance and lineal relationship to the decedent.
Other estate tax options to discuss are the Generation Skipping Tax, a decedent's personal federal and state income tax for his or her last year of life. Review these tax considerations and more with a professional in this area and revise the will if needed. The allocation of estate and inheritance taxes may impact the value of assets given to the intended beneficiaries.
Estate taxes paid
To avoid uncertain consequences: review your will to confirm how the estate taxes will be paid!
Till next week, God bless, keep smiling, when Your Legal Corner will discuss "the #1 reason to register your will."
Victoria M. Dalton is an attorney with the law firm of Hoffman DiMuzio.
Your Legal Corner was created to provide educational articles about the law and is not legal advice.