Happiness Equals Little or No Inheritance Taxes
When one is chosen as an executor of a will, dealing with the assets of an individual who has passed can mean dealing with estate or inheritance taxes. While the two are commonly confused, estate taxes have to do with the property or estate itself whereas inheritance taxes affect the estate's beneficiaries. Another difference is that estate tax is levied by the federal government whereas an inheritance tax is imposed by the state. Rates for inheritance tax can vary from state to state with some states imposing no tax at all. Regardless of the number of beneficiaries, each will be taxed and required to pay his or her own share.
With estate taxes, the executor is obligated to pay dues to the government using monies left behind as part of the estate. If there is none, assets must be sold to meet the duty or the obligation to pay will be passed down onto the estate's inheritors. This can also be true of inheritance taxes paid to the state. Taxes can be figured not only by applying the current tax rate but also by the relationship of the heir to the decedent. Spouses and children will see themselves taxed lower than the other types of beneficiaries, such as distant relatives or friends. The required amount of taxes can also be based on the property's fair market value. If the beneficiary cannot pay the taxes due, once again, it is likely the assets will need to be sold to satisfy the obligation.
There are many complexities when it comes to estate planning and taxes but it does have its pluses. When faced with both inheritance taxes and estate taxes, it is possible to ease the burden on heirs by stipulating that all inheritance taxes be paid with monies from the estate. Using the help of a financial planner who is well versed in estate planning, a detailed portfolio can be made providing access to any and all necessary financial documents the government may need upon a person's death. Other options for limiting or doing away with inheritance tax altogether can also be put in place.
Since each state has its own guidelines when it comes to inheritance taxes, a competent estate planner should be local as well as knowledgeable about current tax codes. The two taxes are often at the center of a great debate and both estate and inheritance taxes find themselves in a constant state of flux. Those who attempt to manage their own estate planning can leave their heirs in a very precarious tax situation that ends up being of benefit to no one.
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