Prior to passing away, most people intend for their possessions to transfer to family, friends, or charities. Often not considered, however, are estate taxes, which are how the government takes its last cut from a departed citizen.
There are three general types of estate taxes: transfer taxes, trust income taxes and estate income taxes. All three of these taxes are levied towards the assets of the deceased and are treated as separate taxes levied against the parts of the deceased’s possessions.
Transfer taxes are the fees levied against property being transferred from one person to another. This can be in the form of a gift while the transferer is alive, or it can be in the form of property and assets distributed through a will.
The rate of transfer taxes can vary widely. The IRS exempts this tax for estate assets of less than $11.7 million for 2021. However, states, counties, and even cities can levy their own transfer taxes. Some states, like Texas, don’t have any transfer tax rate.
Trust Income Taxes
Trust income taxation is more complicated. Broadly speaking, depending on how the trust is set up, it may either pay no taxes, the taxes may be taken from the trust itself, it may be paid by the recipient of the trust, or it may be paid by the person overseeing the trust.
Estate Income Taxes
Estate income taxes are usually more streamlined. Their calculation is largely handled by IRS form 1041: U.S. Income Tax Return for Estates and Trusts. This form is structured similarly to form 1040 for a living person, with the obvious difference being that 1041 must be filed on behalf of the deceased.
Each of these taxation methods, however, can chip away at what is left for the deceased’s beneficiaries.
If you want to avoid estate taxes, you will need an experienced trust & estate attorney to help you construct an ironclad trust to preserve as much of your estate for your descendants as possible. The best place to find a trust & estate attorney is Attorney at Law.
At AAL, our nationwide network of attorneys and law firms allows us to match you with experienced trust & estate attorneys in your area. Our partners have the resources, legal expertise, and experience to get the best possible results for our clients.
In addition to the resources and abilities, our partners are dedicated to providing the highest quality client care. They take client cases seriously and devote themselves to the satisfaction and protection of their clients’ estates.
Don’t wait. Contact AAL today for a free, no-obligation consultation and begin your path to protect your property.