3 Types Of Estate Taxes
You can spend your whole life amassing wealth, but you cannot take any of your wealth with you beyond the grave. Estate planning is the only way to ensure that your loved ones continue to have access to the wealth you have built.
Most people know that they need to create a will or trust and appoint an executor, but few take the time to consider how taxation will affect their estate after their death.
There are three types of estate taxes you should be aware of so that you can plan for the payment of these taxes. Estate tax planning can save your loved ones from the financial burden of taxation after your death.
1. Gift Tax
The federal government collects taxes on amounts they deem to be gifts. Since you may be bequeathing a significant sum of money to each of your heirs upon your passing, this inheritance could be subject to a gift tax.
Gifts up to a certain threshold are exempt, and this threshold can change whenever tax reforms take place. You should work with an experienced accountant to ensure that you understand gift tax limits and their application to your estate.
2. Inheritance Tax
Some states have enacted tax laws that allow them to collect an additional inheritance tax on any property passing from one person to another following the giver's death.
Tax percentages for an inheritance tax can vary from one state to another. You will need to work with an accountant who has experience working within the confines of your state's laws as you navigate inheritance tax while planning your estate.
Spouses, children, and charities are usually exempt from inheritance taxes, but any assets you bequeath to your grandchildren or friends will be taxed according to state law.
3. Capital Gains Tax
Some of the assets included in your estate could continue to generate profit, even after your passing. These assets include stock investments, bonds, and other interest/dividend bearing accounts.
Whichever beneficiary receives these assets after your death will need to pay a capital gains tax on the additional value the assets have accrued. Identify income-generating assets within your estate, and talk to a tax professional to help you determine how a capital gains tax will affect your beneficiaries after your passing.
Taxation isn't necessarily tied to an individual. Some taxes are tied to the assets within your estate. A gift tax, inheritance tax, or capital gains tax could be levied against your estate, despite the fact that you have died. Contact a firm, like Bliss & Skeen CPAs, for more help.