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Will I Owe Estate or Inheritance Tax When I Die?

In addition to Federal Inheritance Tax, the types and amounts of tax due upon death vary by state. Only six states have inheritance taxation; Texas does not have a state tax on estates or inheritance. At Harris Cook, LLP, our Estate Planning attorneys work with Texans who want to plan for the best future that will result in minimum taxation. We can help you set up individualized plans to manage your estate if you are incapacitated and to smooth the transition of assets and property to your heirs and beneficiaries after you die.

What Taxes Might Be Assessed on My Estate or Inheritance?

While you are alive and competent, you are responsible for paying any and all income and property taxes you owe. If you become incapacitated, your designated agent or court-appointed guardian does this for you, taking funds from your estate assets to make those payments. After you die, your estate administrator will pay your creditors, including governments that levy taxes on your income and property. If that executor does not pay taxes owed, the heirs bear responsibility.

Heirs and beneficiaries are then responsible for paying any taxes they may owe to other states or the Federal government. If you inherit estate holdings from someone who lives in one of the states that do have estate taxes, you may owe that state. The six states that tax estates now are: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

Most People Avoid Estate Taxation

Federal Estate taxes only apply to the richest 0.14% of estates, with an exemption on the first $5.34 million of your wealth. This usually does not apply to most people, as they inherit estates of far lesser value. It is estimated that 99% of heirs will owe nothing on their inheritance. Even if your estate is at the highest levels, there are still ways to reduce the tax bite for your heirs and beneficiaries. One of our Estate Attorneys, working with your financial advisor, can provide advice on this topic when you consult with them personally.

In addition to your personal tax exemption, estate taxes can be reduced through several other deductions you can make, including donations to charity, and a marital (surviving spouse) deduction.

If Federal or State Estate taxes are owed, these are generally paid before distributions are made to heirs. Again, the Federal taxes are only required on the highest valued estates, and most people will not have this issue to deal with. State tax rates can reach lower valued estates, so you may be affected by those, unless the entire estate is in Texas, a state that does not tax estates or inheritances.

Get the answers and peace of mind you need about your potential estate or inheritance taxes from Harris Cook, LLP. Contact our law offices in Arlington, TX, Mansfield or Flower Mound for your free consultation. Call us now, at (817) 275-8765.

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