You have to consider many different financial issues during your estate planning. Taxes, like debts, can have a powerful and negative impact on your estate after you die. Taxes that apply to your estate can substantially diminish what you ultimately leave for the people that you love.
If you don’t plan properly, tax complications can consume some of your estate and cause headaches for your executor. Thankfully, a little proactive consideration can make a big difference in the tax obligations for your estate. Let’s look at two ways to address taxes that might apply to your estate.
Think ahead about estate income taxes
One of the easiest ways to complicate the tax situation for your estate is to instruct your executor to sell off all your assets. On the surface, an estate sale is a quick and effective means of converting your assets to liquid capital that they can distribute to your family members and loved ones.
However, the act of selling estate assets can trigger income tax filing requirements. Just $600 of income from selling your assets will require an income tax return and the payment of taxes on those sales.
Consider the total value of your estate
Sometimes, what you leave behind can trigger expensive estate taxes at the state and federal levels. These taxes generally only apply to multimillion-dollar estates. Those leaving behind significant property can transfer some of those assets before their death or move them into a trust to potentially eliminate their tax risks.
Thinking ahead about the financial realities of your estate planning wishes can help you create the most effective plan possible.