They say that the two inevitable eventualities are death and taxes and this is certainly true. But… should the event of your death be a taxable one?
A lot of people would say no, but there is in fact a federal estate tax in place that many people refer to as the “death tax.”
Let’s break it down. Suppose you save as much as you can every month from the time you have a paper route as a kid until you become a senior citizen and you end up accumulating quite a nice nest egg.
All this money was put away after you paid income tax on your earnings. For the record you paid all kinds of other taxes throughout your life as well, such as sales tax on every purchase, property tax, perhaps capital gains tax. You also paid innumerable hidden taxes like gasoline tax, taxes on tobacco and alcohol, hospitality tax, etc.
So the savings that you have are the remainder that you were able to hang onto after paying all these taxes all of your life. As long as you’re alive there is no reason for anyone to tax them yet again.
But when you pass away and the assets are being transferred to your loved ones, here comes the tax man ready to consume a huge percentage of the taxable portion of your estate. It was the event of your death that triggered the tax.
The above does not seem logically supportable to many people, but the tax is a reality all the same. There are however steps that you can take to mitigate your estate tax liability. If you would like to explore them, take action right now to arrange for a consultation with a good Indianapolis estate planning lawyer.
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.