When you are thinking about the position that your loved ones will be left in after you are gone, you would naturally wonder about taxation. Will your family members be forced to report their inheritances as taxable income?
A simple answer to this question is no. An inheritance is not considered to be taxable income, but there are a number of things that you should take into consideration beyond this simple fact. Let’s look at a few of them.
Appreciated Assets
The capital gains tax can be applicable when a gain is realized. You realize a gain when you sell an appreciated asset and pocket the proceeds. Long-term capital gains are gains that are realized more than a year after the original acquisition of the asset. As you might guess, short-term capital gains are gains that are realized less than a year after the assets were acquired.
A long-term capital gain is taxed at your regular income tax rate. Your income level would determine the short-term capital gains rate that would apply to you. Top earners pay 20 percent, but most people pay 15 percent.
What happens from a capital gains perspective if you pass along appreciated assets to your heirs? The answer is that they would get a step-up in basis. As a result, for capital gains purposes, the value of the inherited assets would be equal to their value at the time of acquisition, so there would be no immediate tax responsibility.
However, if an inheritor was to retain ownership of the appreciated asset, he or she would be responsible for future gains if and when they were realized.
Death Taxes
High net worth individuals can be exposed to the federal estate tax. This tax is potentially applicable on transfers that exceed $5.43 million.
There are also some states in the union that impose state-level estate taxes, but fortunately, Indiana is not one of them. However, if you own valuable property in a state that has such a tax, you may need to explore tax efficiency strategies.
Attend a Free Estate Planning Seminar
If you reached our website, you are looking for reliable estate planning information. Indeed, we do go the extra mile to provide a steady stream of useful information on our site, but that is not the only way that we educate people in our community.
Our firm offers free seminars on an ongoing basis, and you can learn a great deal if you attend one of these convenient information sessions. We have four different seminars coming up at the end of October. One will be held in Zionsville, there will be one in Noblesville, and there will be seminars held at two different locations in Indianapolis proper.
Once again, there is no charge to attend our seminars, but they fill up fast, so we ask that you register in advance so that we can reserve your space. You can see the schedule and obtain details and registration information if you click the following link: Estate Planning Seminars.
We urge you to attend the seminar that fits into your schedule, because we also offer free one-on-one consultations to seminar attendees.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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