“In this world nothing can be said to be certain, except death and taxes.” -Benjamin Franklin
Truer words have never been spoken, and it is the intersection of these two certainties that leads to many a headache and oftentimes heartache. Working with an experienced attorney can help ensure that all the taxes owed are paid without unduly burdening surviving family members or other beneficiaries of an estate.
Beyond The Estate Tax
When most people think about taxes that are owed after death they are thinking about estate taxes, but that is not the only type of tax that you should be thinking about as you prepare an estate plan.
The tax that tends to hit most estates the hardest are capital gains taxes. This is true even when the deceased worked with an attorney to avoid “estate taxes.” In fact, certain estate planning techniques designed to help avoid the estate tax can actually end up costing the estate more than they save because of the impact of capital gains taxes.
Surviving spouses or estate administrators must file a 1040 for the deceased and pay any taxes owed. The filer may also collect any tax refund the deceased person would have gotten.
If a person dies owning property, their estate will be on the hook for property taxes. If the property is sold, whatever arrangement is made for taxes in the sale controls, but typically the taxes are prorated for the year and the estate owes taxes for the time period it and the deceased person owned the property.
Sometimes a deceased person’s property continues to generate assets after death. The estate must pay taxes on that income until the income generating property is sold or given to its new owner. The most common example of this is someone that owns a rental property. The renters must still pay even if the owner dies, and taxes will need to be paid on whatever rent is collected.
Tax debt also impacts many estates because back taxes always get pulled into the probate process. The estate of Chyna, the former WWE superstar, actress, and model who died in 2016 is dealing with this issue right now. It is being reported that that California Franchise Tax Board just filed a claim against Chyna’s estate for nearly $19,000, citing tax debts dating back to 2010.
Make Sure Your Estate Planning Attorney Is A Tax Expert
The estate tax is not the only tax you should be concerned about as you create an estate plan. Make sure you are making the right choices for your family by working with an attorney that thinks about taxes other than the estate tax.