Yes! There Are Taxes To Be Paid Even After Death

Taxes are never the topic of discussion when you are inheriting the estate of a deceased. They often spring up out of the blue and create a big financial obligation for the tax payers.

Whether you have recently been awarded an estate or you are planning your estate, don’t forget about the taxes. If you know about the taxes that will be liable for payment in case of a death, you will be able to plan your finances better. Of course, it could be an awkward thing to do but if you want to really save yourself or your family from issues, estate tax planning is essential.

According to the current tax laws, here are the types of taxes you may have to pay on an estate. An estate doesn’t have to pay all of the taxes and the rates will also vary, depending upon the value and the state you are living in.

Federal Estate Taxes

The federal taxes are not applicable on all estates. In fact, since 2014, the exemption limit has been on a rise. It will continue to go up every year, depending on inflation. It is likely that by the year 2034, the exemption will reach at least $9 million per person.

Whether or not these taxes are applicable, any estate that is valued above $5.34 million or more will have to file for federal taxes. The United States Estate (and Generation-Skipping Transfer) Tax Return will be filed through IRS Form 706. If the estate belongs to a non-resident or if the decedents are foreign nationals, the form number will change to IRS 706-NA

State Estate Taxes/Inheritance Taxes

State taxes are not the same. In fact, you may not even have to file for either federal or state tax in many states. However, some states want you to pay taxes on your estate. These include the states of Washington, Oregon, New York, New Jersey, Massachusetts, Maine, Hawaii, Connecticut, Vermont, Tennessee and District of Columbia among others.

Every state has a different set of standards for the payment of taxes. Therefore, you will need to contact your lawyer or estate planner to check if you come under the purview of state-based estate taxes.

States may also expect you to pay inheritance taxes. Remember, there is a minute difference between estate and inheritance taxes. In inheritance taxes, everyone pays only for the share of the estate he collects. However, in estate taxes, the total value of the estate is calculated. The inheritance tax is collected in only six states- Iowa, Pennsylvania, New Jersey, Maryland, Kentucky and Nebraska.

If you are living in Maryland and New Jersey, your tax responsibility could be higher as these states collect both estate and inheritance taxes.

Apart from these, your estate could also be subject to gift taxes and generation skipping transfer taxes. Don’t forget, you will also have to pay an income tax. If the assets of the deceased are sold, they could also be eligible for capital gains taxes. Pay attention to your tax schedule and make sure that all are settled in time.