Question: What are death taxes and when do I pay them? My sister’s in hospice, and I’m trying to get a grasp on how I can prepare ahead of time.
Answer: You can get out of many things by dying, but not taxes. If you have a large amount of property you intend to leave to your heirs, you should be aware it may be taxed. Before your property is transferred, federal estate taxes (and state estate taxes in a few cases) apply.
Any tax imposed on the property transfer after someone’s death is known as a “death tax.” In the 1990s, the term “death tax” became popular, and it was applied to estate and inheritance taxes by individuals who wanted them repealed. The decedent’s estate pays the estate tax before the assets are passed to the recipient. The individual who inherits the property pays the inheritance tax.
In simple terms, death taxes are levied by the federal and state governments on a deceased person’s estate. These taxes are imposed on either the beneficiary (who receives the property through the deceased’s will) or the estate, which pays the tax before distributing the inherited property among legal heirs.
Death duties, estate taxes and inheritance taxes are used to describe death taxes.
Death duties, estate taxes and inheritance taxes are used to describe death taxes.
If President Biden’s proposed American Families Plan becomes law, the death tax for millions of Americans will rise.
Like I said before, inheritance tax is another term for death tax. Although the federal government lacks one, certain states do, including:
● Maryland
● Iowa
● Kentucky
● Pennsylvania
● Nebraska
● New Jersey
Iowa will progressively phase out its inheritance tax until it is entirely removed in 2025 after the state legislature agreed to repeal it in 2021.
The federal government and several state governments levy an estate tax depending on the value of the owner’s property at the time of death.
Twelve states have estate taxes in addition to the federal estate tax, including Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.
Your concern is valid. Speak to your sister, and ask if she has made a will. If she’s not in a condition to speak about these matters, you can consult a financial advisor. If she has made a will already, find out the name of the beneficiaries first. If there is no will, you should hire an attorney and prepare a will as soon as possible. Also, find out if your sister lives in the states mentioned above.
Is your sister married? Inheritance taxes are not usually levied on property left to a surviving spouse. In some cases, Nebraska and Pennsylvania charge taxes on assets that are passed down to a child or grandchild.
The unlimited marital deduction, which enables individuals to transfer an unlimited amount of wealth to their spouse at any time, is a simple way to reduce the death tax. The provision repeals the federal estate and gift taxes on property transfers between spouses, effectively considering them as one economic entity.
The unlimited marital deduction, which enables individuals to transfer an unlimited amount of wealth to their spouse at any time, is a simple way to reduce the death tax.
Unlimited marital deduction makes it possible for married couples to postpone paying estate taxes after the first spouse’s death. When the surviving spouse dies, all assets over the exclusion amount will be included in the surviving spouse’s taxable estate unless they used or gifted them before their death.
Suppose you’re the sole beneficiary of your sister’s property. In that case, it makes sense to consult a financial advisor who can assist you in navigating the numerous death taxes and may be able to reduce your tax liability.
Finally, check if your sister has past due accounts, and take steps to settle debts to avoid legal hassles later on.
