Although taxes may be one of the items furthest from an individual’s mind when a close friend or family member passes away, a large amount of people will unfortunately face death tax issues at what is already an extraordinarily difficult time. A recent article discusses how individuals can plan their estates to shield their beneficiaries from this fate.
It is first important to understand how common tax issues are in estate planning and administration. According to chief fiduciary officer at Bank of the West in San Francisco, “One in 10 estates have some tax issues . . . There’s nothing worse than being in your worst grieving moments and having to deal with financial chaos.” There are a variety of state or federal taxes that may plague a family after a death.
In order to plan for and avoid these taxes, it is important to create an estate plan that takes them into account. One tax issue may be an unpaid federal or state tax liability. This often occurs when a person faces a long illness before his or her death and no one took charge to see that financial obligations were met. There may also be unforeseen federal or state taxes due. Although federal estate taxes don’t kick in until the estate is worth $5.25 million, some state estate taxes apply at much lower levels. For example, New Jersey’s estate taxes apply at $675,000 while New York’s estate taxes apply at $1 million.