At the time of death, everything owned is considered a part of the deceased's estate, which falls under federal and state tax laws. Taxes are based on the value of the estate after allowances for deductions and credits.
The estate tax is a hot political issue because many people feel that most items in an estate has already been taxed when they were purchased or at one time or another. That is why some people call an estate tax, "a death tax, " and they feel that it should be repealed entirely.
The deceased's estate include all assets, such as insurance policies, real estate, cash, bank accounts, stocks and bonds, jewelry, automobiles, clothing, furniture, and other real and personal property.
An executor or an administrator is usually required to handle the execution of the estate. The executor may be named by the deceased in a will or a living trust. If there is no will or living trust, the executor is normally appointed by the court in the jurisdiction in which the deceased lived.
If the deceased owned a business, was in a partnership, is owed money, is the beneficiary of a promissory note on a mortgage or other type of loan, it is all a part of the estate.
It depends on the value of the estate whether or not taxes have to be filed on it. If the estate exceeds $600,000, a federal tax return must be filed within nine months of the actual date of death.
A value must be put on each item in the estate. The estate taxes are calculated by adding the value of the whole estate before subtracting all acceptable deductions and credits.
Certain administrative expenses are allowed to be deducted, such as funeral costs and estate administration expenses, but they cannot be deducted until after completion of the entire inventory.
Fees that can be deducted include the costs to sale real estate or personal property, attorney's fees, appraisal costs, and the carrying out of the wishes of the deceased, such as gifts to charity and paying certain debts.
If the estate is over the $600,000 amount and not all of it is left to the surviving spouse, special tax considerations might apply. If there is income earned by the estate before it is distributed to the heirs, it is subject to federal income tax and in some states, state income tax may also apply.
Under federal law, taxable income earned by an estate must be reported annually on IRS Form 1041 (Fiduciary income Tax Return) if the gross income amounted to more than $600. If the income was given to a beneficiary of the estate during the tax year, the beneficiary must pay the income tax.
Talk to a tax attorney about ways to reduce the amount of taxes your estate will have to pay if you die. It is always in your best interest and the best interest of your heirs to have everything spelled out in a will or living trust.
We are looking to create more mutually beneficial partnerships. If you are interested in partnering with MoneyMatters101.com, send us your proposal.