There are a lot of considerations to make when planning out your estate. For starters, you should have some idea of who will inherit your estate. Likewise, someone will need to stay and watch over your estate to ensure it’s all in proper order once the probate period is over.
However, one very important aspect of an estate will, which many people overlook, is estate taxes. That’s right, your estate can and will likely be taxed by the IRS before your beneficiaries lay one finger on their inheritance. It can be difficult to determine how the IRS calculates the taxable value of your estate, but not impossible. Here’s what you should know:
Totaling your taxable estate
When determining the taxable value of an estate, nearly everything is considered: cash, stocks, bonds, real estate, cars and collections. The main thing to remember about estate taxes is that the size of your estate determines how much is taxable.
However, there are some exemptions for what’s taxed. For example, a spouse may inherit an estate tax-free, yet, a child, sibling or other heirs will likely still face taxes. Additionally, many items are deductible from estate taxes. Such as funeral expenses, estate administration, debt, mortgage and loans.
Reducing the burden of estate taxes
Some people don’t want their estate to be taxed before their heirs have a chance to do anything with it. Instead, people frequently create trusts to ensure their beneficiaries obtain all of their promised inheritance. This is because trusts circumvent estate taxes.
When planning out your estate, you should be sure you have a strong understanding of all of your legal options. Otherwise, there may be complications that leave your beneficiaries without their inheritance.