Tax ramification to consider when estate planning

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Tax Estate Planning

This is an estate tax planning is to transfer as much of your property with as little taxation as possible. One way to do this is to give money away during your lifetime, by making lifetime gifts, you remove not only the gifted assets from your estate but also the future appreciation of those assets.

Benefits of Tax Estate Planning.

1.  A reduced tax bill for you

Reducing your overall liability for income tax, capital gains tax, wealth tax and other taxes on your savings, investments, assets and pensions. If there is a more tax-efficient way to hold your capital and assets, shouldn’t you explore if it could work for you? Yet many people fail to do just that and unknowingly end up paying more than they should. This may include income tax on bank interest you are not even withdrawing, or capital gains tax when switching between investments.

2.  Less taxation for your heirs

Of course, the less tax you pay in your lifetime, the more you have to either spend now or pass on to your chosen heirs. But with some investment structures you may also be able to lower the inheritance tax liability for your heirs. A locally compliant life assurance bond. Ideally you want a solution that will limit inheritance taxes while also providing tax efficient income and investment growth throughout your lifetime, so take personalised, specialist advice to explore your options.

3.  More estate planning flexibility

Strategic tax planning could help make things easier for your family when you are gone. Many investment arrangements that provide tax efficiency also offer more estate planning flexibility and control.

4.  Maximising real returns

In this global climate of economic uncertainty and prolonged ultra-low bank interest rates, effective tax planning also plays a part in helping returns outpace the cost of living. Ultimately, what counts when assessing the value of investments are actual returns, after all tax, expenses and inflation are taken into account.

 Tax ramification when Estate Planning

Tax ramification in estate planning are important to understand. However, based on the value of the person’s estate, there could be federal estate tax ramification. Currently, there is a 40 percent tax imposed on an estate over $5,490,000 for decedent’s dying in 2017. When an estate that is worth less than $5,490,000, no estate tax is imposed and an estate tax return is not required to be filed. Any estate above $5,490,000 is considered to be a taxable estate and will be taxed. It can be confusing.

1. Estate Tax return

An estate tax is a tax on a person’s right to transfer property upon their death. An estate is only required to file a federal estate tax return when the estate meets the filing thresholds. Assets included in the estate tax returns include probate assets and non-probate assets. Any assets a person owns at their death regardless of how the asset is titled and regardless of whether there is a beneficiary designation are included on the federal estate tax return. Examples of assets include real estate, cars, jewelry, artwork, bank accounts, investment accounts, retirement accounts, and life insurance policies. For the purpose of an estate tax return, assets are valued as of the date of the person’s death. For assets like real estate and personal property, a professional appraisal is often required to determine the value. When a federal estate tax return is required to be filed, it must be filed within nine months of the date of death.

 2. Documents submitted

In addition to the federal estate return, the death certificate must be filed along with a copy of the person’s last will and testament, their trust if there is one, and copies of evaluations of assets. For example, appraisals of real estate and tangible personal property should be attached to the returns as well as documentation of the funeral expenses.

3. Other Tax return

The personal representative must ensure that all income tax returns are filed including the decedent’s final income tax return. The decedent’s personal income tax return is different from the estate tax return, although in many cases, an estate tax return is not required to be filed. A personal income tax return is almost always required. When a person dies at the beginning of the year, the personal representative must make sure to file that current year’s tax returns. Similarly, when a person dies in the middle or end of the year, the personal representative must make sure to file by April 15th of the following year on the decedent’s behalf.

4. Submission deadline

When a federal estate tax return is required to be filed, the return is due nine months from the date of death. For income tax returns, the income is required to be reported on a decedent’s final income tax return which is due on April 15th of the following year. There is an opportunity to request an extension of six months, so it is possible to have a total of 15 months from the date of death to file the decedent’s estate tax return. The extension, however, does not defer the deadline to pay the tax, and estimated taxes are still due nine months from the date of death.

 Get help

If you would like to learn more about the documents you need in estate planning, any one of our estate planning attorneys would be happy to assist you.

DISCLAIMER: The information provided in this blog is for informational purposes only and should not be considered legal advice. The content of this blog may not reflect the most current legal developments. No attorney-client relationship is formed by reading this blog or contacting Morgan Legal Group.

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