If there’s one good thing about death, it means that your no longer have to deal with what are often complex and time consuming tax matters. This does not mean that taxes related to one’s estate completely disappear however. Instead, someone left behind will have to deal with financial matters. For those whose estates meet a certain threshold, estate taxes will be an issue.
In 2014, federal estate taxes will apply to those whose estate is worth more than $5.34 million. There is good reason why someone might try to create an estate plan that would avoid meeting that threshold. For some individuals who die, the income tax rate their final tax return is subject to is 10 percent. The federal estate tax rate is four times that, 40 percent. Being subject to the higher rate means that heirs will ultimately receive less money. While the tax rate is high, as with regular tax returns, certain expenses, such as unpaid medical expenses, might be deductible.
The decedent could have a say in who it is who deals with matters such as these. He or she may name an estate executor as a part of an estate plan. In situations where this is not done ahead of time, the probate court makes that appointment. Addressing tax issues is only part of what the individual who handles this will have to attend to.
As anyone who has completed their individual income tax returns is aware, the process can be complicated and take some time to complete. Because this activity is not something most people do on a regular basis, to make sure everything is done correctly it is usually beneficial to work with a lawyer who handles tax law.
Source: Market Watch, “Dying doesn’t make the taxman go away,” Bill Bischoff, Aug. 19, 2014