Estate Planning

Estate Planning Basics

One big concern when designing an estate plan is taxes. After all, it’s the means by which you transfer wealth to inheritors. The act of giving away your property may be subject to taxes on the state or federal level, or even both.

In fact, these taxes could be the largest expense your estate may have to pay. Understanding what these taxes are, how they work, how they may affect your estate, and how they can be minimized is vital to a successful estate plan.

Having Your Life Affairs in Order

Of course, taxes are only dimension of someone’s estate or legacy wishes. For many households, a bigger problem can be organization! And that applies not only to wealth transfers for when someone might pass, but keeping everything in that person’s life affairs straight. Especially when the unexpected happens!

Consider this. Did you know:

  • On average, people have 90+ online accounts with login credentials, from online banking and monthly bills to email accounts.
  • The average person changes jobs 10 times before age 40.
  • The average individual has about a 50% chance of being part of a family involving stepparents or stepchildren.
  • Nearly 1.7 million people passed away in 2016 from health failure or emergency situations, including accidents.
  • There has been an increase in unclaimed property with an estimated value of $58 billion.
  • Every year, newfound billions of dollars in unclaimed property includes checking & savings accounts, stocks, refunds, payroll checks, unredeemed money orders, annuities, and more.

People need a system to manage all of their scattered information and data. What’s more, they should have it all in one place should the unexpected occur. One solution, LegacyShield was created as a military-grade-secure, easy-to-use, and convenient way to manage people’s lives — and to ensure nothing gets lost, at any point.

Estate Planning Tax Basics

While estate taxes technically refer to taxes imposed at death, there are two taxes which have a wide influence on the estate planning landscape: 

Transfer taxes – taxes imposed when someone gives away property to someone else when they’re alive or dead. Transfers made when a person is alive are gifts, which are taxed yearly. Transfers made when someone is deceased are legacy, bequest, or in-estate succession, all of which are subject to estate taxes upon the giver’s death. 

Income taxes – Under federal tax law, a person’s estate is classified as a separate legal entity. The executor of the deceased’s estate may have to file an income tax return for an estate, and another return for the deceased’s final year of income earnings. Income sources within an estate may include real estate property holdings, interest earned in a bank account, or income not paid to the decedent before death.   

Other Estate Planning Fundamentals

At the federal tax level, most American households won’t have to pay estate tax. Only estates worth over $5.3 million will have to pay the federal government (for deaths in 2015). Estate taxes must be paid within nine months of the decedent’s death date.

Other important notes:

  • Gift taxes and estate taxes are wrapped up in a “unified” tax system
  • This is so you can’t escape tax liability with property giveaways when you’re alive
  • Upon death, all taxable gifts are included in the gross estate to calculate the estate tax owed
  • As a result, you pay taxes on the cumulative wealth you’ve given away
  • This happens even if the gift taxes were already paid during the deceased’s lifetime 
  • Gift tax is deducted from estate taxation owed, if any

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