While a necessary evil, most New York residents still loathe paying taxes. In fact many people spend their whole lives attempting to avoid paying taxes on accumulated wealth. Unfortunately, even when an individual dies, they cannot escape paying taxes as tax burdens are then passed on to the individual’s estate and, in some cases, loved ones.
As with most things in life, being informed and prepared are the best defense for avoiding post-mortem tax problems. For example, without proper documentation trying to identify and access those accounts held in an individual’s name is a difficult task. To remove this burden from loved ones, it’s wise for individuals to ensure they keep a record of existing accounts and passwords in a safe place.
Armed with a comprehensive list of existing accounts, loved ones are then able to more easily determine which accounts are subject to additional taxes. Even before passing on, however, there are steps individuals can take to minimize tax penalties and ensure the maximum amount of wealth and assets are passed on to intended parties.
For example, individuals would be wise to take advantage of gift tax exemptions. Under current federal law, an individual is allowed to gift up to $5.25 million dollars without having to pay taxes on those dollars and the money can be distributed while an individual is still living. Annual gift exemptions for an individual currently stand at $14,000 and are adjusted to keep pace with inflation each year.
Additionally, during one’s retirement years, it’s often best to use assets held in certain types of accounts. For example, unless absolutely necessary, individuals should avoid touching those assets held in a Roth IRA as this type of account has many tax benefits and protections when passed on to a designated beneficiary.
New York residents who have questions or concerns about estate planning and taxes would be wise to contact an attorney. An estate planning legal professional can provide advice on ways to retain wealth and avoid paying unnecessary taxes upon one’s death.
Source: U.S. News & World Report, “5 Things Everyone Should Know About Death and Taxes,” Kristen Owen, Oct. 28, 2013