Is My New.Husband Liable.For.My Old Debt To Lawyers Death and Taxes: Will Your Estate Be Taxed At Death?

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Death and Taxes: Will Your Estate Be Taxed At Death?

As the saying goes, “nothing is certain but death and taxes.” In the context of estate planning, this reality drives the estate planner’s desire to minimize taxes upon death as much as possible. In fact, the world of estate planning is consumed with tax minimization in all its forms. Lawyers and advisers guide clients through legal and financial avenues in order to avoid or delay payment of taxes, be it wealth, capital gains, gifts, income, etc. It is imperative that clients know whether their assets will be taxed upon their death. so they can properly seek advice from their estate planning professional. This article provides a general overview of estate taxes.

What is taxable?

Generally, any property that a person owns in his passing is taxable, including bank account, cash, securities, real estate, cars, etc., are included in his gross estate. Contrary to popular belief, death benefits from life insurance policies that a person owns are taxable if they are not properly structured. Joint property, including joint bank accounts, is 100% included in the estate of the first joint owner of the property to die, except to the extent that the other joint owner can show that he contributed to the property. Business interests, corporations, and LLCs are also included in gross estate, as are general powers of appointment.

Deductions from gross assets:

To determine the taxable estate, we must reduce the gross estate by the applicable deductions. The IRS allows the following deductions from gross estate, which reduce gross estate:

1. Marital Deduction: One of the main deductions for married heirs is the marital deduction. Both jurisdictions allow an unlimited marital deduction which means that assets that pass outright to a citizen spouse will not be taxed on the death of the first spouse. There are often very good financial, legal and tax reasons for not leaving everything to the surviving spouse, as will be discussed in the next article on credit shelter/bypass.

2. Charitable Deduction: If the decedent leaves property to a qualified charity, it is deducted from the gross estate.

3. Mortgages and debts related to properties.

4. Estate administration expenses including executor/administrator, accountant and attorney fees.

5. Losses during property administration.

Not one, but two:

Both New York State and the federal government impose special estate taxes on heirs who die with a certain amount of assets. The government thinks that death should be a taxable event because almost everything else you did in life was. New York State and the federal government tax properties at different rates and at different rates. Uncle Sam, however, gives taxpayers a deduction for the amount they paid in state taxes.

Federal Estate Tax:

The federal government currently taxes estates worth over $5.12 million at a rate of 35% in 2012. Unless Congress acts, the federal estate tax is scheduled to be 55% on gross estates over $1 million in 2013 and beyond.

New York State Estate Tax:

New York State taxes New York residents’ estates if they are over $1,000,000. Nonresidents pay the tax only if their estate includes real property or tangible personal property located in New York and valued at more than $1 million. NY estate tax rates range from 5.6% to 16% for estates over $10 million and are expected to remain the same for the foreseeable future. New York requires estates with a gross estate of over $1,000,000 to file Form ET-706 along with a federal estate tax return, even though one may not be required by the IRS (because the estate is below the federal filing threshold) .

The tax thresholds mentioned above assume that the testator made no taxable gifts during his lifetime. A taxable gift is a gift made to a person above the annual gift tax exemption amount, currently $13,000. If taxable gifts are made, they reduce the amount of the estate tax exemption to the extent that no gift tax has been paid on them.

It is possible to avoid the estate tax sting by (1) taking full advantage of each spouse’s estate tax exemption (2) deferring taxes until the death of the second spouse (3) and escaping taxes entirely by gifting as must during life and/or after death. To speak with an estate planning attorney for an evaluation of your financial situation and to see what options can minimize or eliminate your potential estate tax liability, contact us at (347)ROMAN-85

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