Have you thought of your post-mortem financial plans?

Many choose to ignore the topic of post-mortem planning. But, without it, you (or your estate) could be liable for a huge tax bill.

That’s why tackling this issue while you’re still alive is critical. After all, the more decisions you’ll make now the less action your executors, trustees, and advisors will have to take when you’re gone.

1. Federal Estate Tax

After someone dies there is a possibility of owing federal estate taxes. However, the majority of people won’t have to worry about this seeing as the value of the estate needs to be rather high – $11.58 million or more.

But, if yours does fall into this amount, you will need to file a federal estate tax return using IRS Form 706, or for non-residents, Form 706-NA.

2. State Estate Taxes

Depending on where you live or own property, you might need to pay state estate taxes.

For those living or who own properties) in Connecticut, the District of Columbia, Hawaii, Maine, Massachusetts, New Jersey, New York, Illinois, Minnesota, Maryland, Rhode Island, Oregon, Washington, and Vermont you will need to be aware of these regulations as they all collect an estate tax.

Keep in mind that the rules and exemptions change depending on where you live. That’s why it’s best to confirm with a financial advisor what (or if) you’ll owe.

3. State Inheritance Taxes

An inheritance tax is based on who receives the property. But, only 6 states collect state inheritance tax. These are Maryland, Iowa, Kentucky Nebraska, New Jersey, and Pennsylvania.

Once again, the rules for exemptions change based on the state. For example: in all 6 states a surviving spouse and charities are exempt from paying the inheritance tax but only in New Jersey, Maryland, Iowa, and Kentucky will a deceased person’s descendants also be exempt.

That’s why it’s best to speak with a financial advisor, like us as A.P Accounting and Tax Services to understand what you’ll owe.

4. Federal Gift Taxes

Filed by filling out IRS Form 709, the federal gift tax is only collected in one state: Connecticut. This is typically paid by estates where federal or state estate taxes are owed. That’s because the estate may have to report gifts made during the deceased person’s lifetime that were not reported when alive.

5. Transfer Taxes

Generation-skipping transfer taxes (known as GST) is a tax at the federal level. This occurs where part of the estate is being passed (or given in trust) to a ‘skip person’. A ‘skip person’ is a relative who is two or more generations below the deceased person (for example a grandparent to grandchild). Or it could be someone that is unrelated to the person but who is 37 ½ years or younger than the deceased.

6. Income Taxes

When a person dies you will also need to file the deceased person’s final income tax return at the federal (and state-level if required) for the year.

You’ll also need to keep in mind that it will take some time to settle an estate or trust. During this time, assets can be earning interest. Take for example things like stocks and bonds which can result in added income.

So, any additional income earned by an estate or trust will need to be reported on IRS Form 1041 (U.S. Income Tax Return for Estates and Trusts).

Keep in mind that certain types of accounts (such as non-Roth IRAs, 401(k)s, and annuities) have built-in income tax consequences so it’s best to check with a professional about which, and how much, you’ll owe.

Ultimately, if you’re unsure how to begin estate planning speak to a professional. If you’d be interested in learning more, or knowing what services would benefit you, give us a call at 407-328-5001.

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