When property is transferred from the ownership one individual to another, the government imposes property taxes. This can occur at death when someone inherits the estate or it can occur while the owner is still alive but transfers property as a gift. An individual's estate is their net worth at any specific time. It includes any real estate they owned, bank accounts in their name, stocks, securities, personal assets like jewelry, vehicles, and art and antiques, and life insurance. If the sum total of their assets equals a certain amount ($5 million in 2011), the estate will be subjected to federal estate taxes.
The executor of the estate will be responsible for filing and paying estate taxes as well as disbursing the remaining funds among the beneficiaries. Before they file a tax return, there are some exemptions that will bear on the case. A personal estate tax exemption allows a portion of the estate to be tax-free. Currently, this is set at $5 million, but the government could change this at any time. Another exemption is marital deduction. If the estate is being inherited by the surviving spouse, there may not be any taxes required. Situations that could change this include whether or not the spouse was a U.S. citizen and whether the entire estate is being given to him or her immediately.
As the personal representative or executor is responsible that these taxes are paid correctly, it is important that the owner choose this person wisely. Someone who is honest and trustworthy as well as financially knowledgeable will be a great asset during the entire process. After the decedent passes away, the estate tax return must be filed before the end of nine months. Depending on the state the decedent lived in, there may also be state estate taxes. As each state's laws are different, it is important to speak with a probate attorney knowledgeable in estate tax in order to avoid problems.
One of the major benefits of estate planning is that is can help reduce the amount that will be taken away from beneficiaries in estate tax. There are several legal methods that individuals can take advantage of and a legal representative can help determine which is best for specific cases. Through a marital transfer, money or property transferred to a spouse after death will not be taxed. However, after the transfer, taxes will later be due on the estate. Another way to reduce estate tax is through gifts to children and grandchildren. By making these gifts throughout the person's lifetime, their intended beneficiaries will pay less after their death.
An irrevocable life insurance trust also reduces taxes by reducing the size of the estate. As life insurance proceeds are usually not taxed, it increases the amount that will be received by the beneficiaries after the decedent's death. A family limited partnership protects assets from creditors as well as lowering tax rates. This estate-planning tool is convenient in that it is flexible and can be changed or revoked at any time. Private annuity occurs when the property owner sells any type of asset to their children or grandchildren. The original owner then receives an annual amount during their lifetime.
If you would like to learn more about avoiding estate tax, it is imperative that you speak with a skilled probate lawyer as soon as possible. Time is crucial in protecting your assets for your family, so do not hesitate to contact a legal professional. Not only could you save money, but you could evade conflict and confusion. Find the best estate plan for you and prepare for the future.