Death and Taxes: What You & Your Loved Ones Can Expect to Pay After You Pass Away

There are only two things for sure in life: death and taxes. Heirs of the deceased must consider taxes after a loved one’s death, even though taxes are rarely the first thing on their minds. Addressing potential tax issues now can lift a significant burden from your loved ones. In addition, failure to address tax issues now can harm your estate and can result in inheritance problems that may undermine your wishes for property and assets after death.

Proper preparation with the help of a qualified estate planning attorney can help minimize taxes after you pass away. Planning ahead can also avoid help avoid complicated legal issues that your loved ones must address after you are gone. As part of the estate planning process, you should consider the following tax obligations and related costs.

State and Federal Estate Taxes

Your estate may be taxed after you pass if it rises above a certain dollar limit. This limitation is in the millions of dollars, so many people often do not have to deal with the estate tax on the federal level. For 2017, the estate tax exemption is $5.49 million per individual. With proper planning, however, even larger estates can avoid the majority of this tax.

Thankfully, Florida does not have an estate tax or an inheritance tax. In fact, it would require a constitutional amendment for Florida to be legally able to collect an estate tax. Florida is also one of seven states that do not have income taxes.

Federal Income Taxes

Even after death, your estate administrator must file your federal income taxes. The IRS requires a final accounting of all of your income, even in the last year of your life. The administrator or executor will file your income taxes as if you are still alive, but they will indicate that you are deceased underneath your name. The deadline for this filing is generally April 15 of the following year after your death.

Only income earned or received between the beginning of the year and the date of your death will be reported on the final return. Earnings after death are attributed to the estate, not the decedent.

Gift Taxes or Inheritances Taxes

Inheritance taxes go against the beneficiaries of the estate, not the decedent. This is in contrast to estate taxes, which are from the estate itself, not the recipients. However, only a few states have inheritance taxes, and Florida is not one of them. Nonetheless, if you own property in one of the states that has an inheritance tax, your beneficiaries will be taxed based on that state’s tax laws. The following states have inheritance tax as of 2017:

  • Iowa
  • Kentucky
  • Nebraska
  • Maryland
  • New Jersey
  • Pennsylvania

Inheritance tax amounts often vary depending on the beneficiary’s relationship with the decedent. The more closely you are related, the less the tax will be. The executor must file an inheritance tax return if it is required, regardless of how many beneficiaries are affected.

Probate Expenses

The probate process can be expensive, but planning appropriately can cut down on these costs. Relatively small estates will have fewer costs, but there will be fees involved regardless. Items such as accounting fees, publication costs, and filing fees will need to be addressed as part of the probate process. Attorney’s fees should also be considered.

A qualified estate planning attorney can be an invaluable resource to help you plan ahead to avoid unnecessary taxes after you pass. Your loved ones will appreciate your foresight when it comes time to administer your estate. Call (904) 880-5554 to schedule your appointment today.

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Written by Legacy Planning Law Group

Legacy Planning Law Group is dedicated to working with individuals and families to help protect the assets they have built throughout their life, and make everything simpler for families who have lost a loved one. We help thoughtful people achieve the peace of mind that comes with planning their personal legacy and passing on family harmony.