Minimizing estate taxes

Many taxes must be paid on behalf of the deceased after death. First, an income tax return must be filed for all income received by the deceased prior to his or her death. Second, an income tax return must be filed for all income received by the estate after the deceased's death. These income taxes are unavoidable, and would have been owed regardless. However, when a person dies, his or her assets are potentially subject to an additional 'estate' tax, which must be paid in addition to regular income taxes. The estate tax can range as high as 55 percent on the value of the assets being transferred to the heirs. There's an exemption from any estate tax on the first six hundred seventy-five thousand dollars of any assets transferred. However, the 'value of assets' includes the gross value of real property. Thus, the exemption may be entirely or almost entirely used up by the transfer of the principal residence, leaving all other financial assets such as stocks, bonds, money market accounts, retirement accounts, et cetera, subject to this hefty estate tax. Preparing a trust before death can allow a husband and wife to minimize this estate tax by ensuring that each spouse takes a six hundred seventy-five thousand dollar exemption, thus allowing a total of one million three hundred thousand dollars. in assets to transfer to their children without being subject to the estate tax. Other alternatives are available in more complicated estates. However, this type of planning must be done before death occurs. For more information on whether estate taxes can be minimized in your particular situation, please contact an attorney.