Estate taxes can be very burdensome and can result in undue stress on a family. A family faced with the prospect of having to pay estate taxes will have a greater risk of losing assets than they would have had they been aware of the laws in the state in which they lived. This situation is even more common where the deceased was a member of a large family. Estate taxes can often result in a family being forced to split assets amongst themselves, resulting in further financial hardships for the family.
Taxes are levied on many types of assets throughout the world, but estate taxes are unique because they are levied directly upon the beneficiaries of that asset. An estate tax is basically a tax paid on an inherited property or cash by an individual who receives money or other assets from someone who has passed away, whilst an estate tax merely is an annual tax on the entire value of an inherited asset, regardless of whether it is paid or not during the lifetime of the person claiming it. There are exceptions to these two types of taxes, but the majority of people will at least have to face them throughout their lifetimes.
The bulk of what can be termed as estate taxes are levied on people who inherit wealth or inherit property within their estate. Many times, there is no way to ensure that the assets have been properly titled (cashed in) so that the tax that is due cannot be levied on them, although in cases where this is the case, the heirs can claim exemptions against the amount of the tax owed on their inheritances.
Estate taxes are collected from the proceeds of the distribution of the estate, which can consist of any part of the assets of the deceased person that were not immediately consumed during the course of the decedent’s life. Commonly, the proceeds of the estate are levied as a gift tax, and this gift tax generally applies to the executor or administrator of the estate, even if they are not the claimant of the inheritance. While there is no way that one can avoid the gift tax, it is possible to reduce the size of the proceeds that are subject to this particular tax. These methods include making sure that there is an adequate Trustee, if there is more than one executor; paying the gift tax over a period of time rather than all at once; and setting up the trust to make payments directly to the IRS rather than a trustee.
Estate taxes are a necessary evil and are levied in order to pay the expenses that are incurred during the administration of an estate. Unfortunately, many people don’t realize that they are responsible for these taxes, and often feel that the estate is simply an investment opportunity that has been passed down to them without any obligation whatsoever. The reality is that if the proper steps aren’t taken to ensure that taxes are paid in a timely fashion then the estate can become subject to heavy penalty fines and legal action by the government. One of the most common strategies estate planners to use when working with clients that owe inheritance taxes is to seek out someone who is experienced in financial law and tax law in general. This individual will be able to advise and assist the client in the entire process of settling their tax obligations, from the collection of the assets to the disposition and distribution of those assets.
It is very important that individuals that are liable for inheritance taxes properly learn about the laws regarding these types of taxes, and that they take every step necessary to minimize their impact on their heirs as much as possible. It is also very important for everyone to remember that if the IRS goes after you for inheritance taxes, they have the right to take your money immediately – even if you have already gone through the process of legally establishing the estate and transferring assets. This can be extremely frightening for many families and individuals who are responsible for huge sums of money that could be rightfully heading to your heirs. If you’re afraid of the IRS going after your assets, you need to learn everything you can about estate taxes so that you can properly protect yourself.
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!