Death and Taxes | K of C

WHEN PLANNING YOUR INSURANCE NEEDS, CONSIDER WHAT THE GOVERNMENT WILL DEMAND AFTER YOUR DEATH By Gerald Korson “Nothing is certain,” goes the old adage, “except death and taxes.” Although no one is entirely certain whether it was Benjamin Franklin or another sage who coined the phrase, it is true enough. We will all face death one day, and we all must pay taxes in one form or another. Often, the two coincide. When you pass away, depending upon your circumstances, you might leave behind tax obligations. The burden will shift to your survivors unless you make provisions now to cover any such debt. In addition, there are taxes that may be associated with the passing on of your estate or trust, and taxes associated with your bequests. These can vary from state to state, and depend in part upon how your estate has been structured. Let’s survey some of the possible tax obligations that may exist at the time of your death – obligations that might have to be carried by your loved ones.  Federal Estate Taxes. Most of us won’t be hit with federal estate taxes because the exemptions are so generous. For 2019, an individual can leave $11.4 million to heirs and pay no federal estate taxes; a married couple can leave $22.8 million. It’s all based on the value of the decedent’s net estate — the gross estate reduced by allowable credits and deductions. But if the net estate falls short of that threshold, no federal estate taxes are owed. State Estate Taxes. For 2019, if the deceased owned real estate in any of 15 states or the District of Columbia, they might owe state estate taxes. The exclusion amounts vary from $1 million to $5.6 million, so check state laws for details. State Inheritance Taxes. These are taxes to be paid by those who inherit property or money from your estate. Only six states presently collect such a tax, but if your gifts are affected it means your heirs will wind up with a smaller gift than you designated. Fortunately, all six states have exemptions for the deceased person’s spouse and any charitable gifts, and four of the six states also except assets passed along to other descendants. But again, it’s important to be aware of state inheritance tax laws and how they might affect your own designated heirs. Gift Taxes.  In two states, if any federal or state estate taxes are owed, then the estate will have to file a gift tax return to report any gifts made during the decedent’s lifetime that were not previously reported. Income Taxes. Naturally, the deceased person will still owe income taxes for the tax year in which he or she was still living. If any of the deceased’s assets are sold after death, there might be additional capital gains taxes to pay. Even if the estate is not affected by estate taxes, inheritance taxes or gift taxes, it might still be subject to income taxes in one form or another. Confusing? Overwhelming? If so, you might need expert assistance. Death and taxes may be inevitable, but there are steps you can take to make them less of a burden. Your Knights of Columbus field agent can help. He will help you prepare an inventory of your assets and liabilities, define your estate planning objectives, evaluate those objectives based on your current situation, and determine what steps are needed to achieve your objectives. He’ll consult qualified advisors to implement your plan and will review it with you periodically to ensure it still meets your needs. That way, you’ll be able to avoid burdening your loved ones and heirs with unanticipated tax obligations that can reduce the net amount of the gift they receive from you.