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Federal Estate Taxes:
The federal government has traditionally imposed federal estate taxes (called death taxes by opponents) above a million dollar or multi-million dollar threshold on all of the property owned by a person when they die. Most people don't die leaving a million or millions of dollars so are not effected by this tax. Traditionally, this tax did not apply if a person died and left property to a spouse, but did apply if a person died and left property to children. Traditionally, lawyers with special tax training have written complicated, super-expensive trusts for these wealthy clients to minimize the amount of federal estate taxes their children or grandchildren would have to pay when they die.
For people dying in 2013 the federal estate tax applies only to estates larger than $5,250,000. For people dying in 2014 the federal estate tax applies only to estates larger than $5,340,000. These amounts are indexed to inflation for future years. CAUTION: What items are part of the estate for federal estate tax purposes is DIFFERENT THAN what items are part of the probate estate under state probate procedures. If you are concerned about federal estate tax liability and ways to minimize federal estate taxes you need a personal consultation with a tax lawyer.
Federal Taxes on Estate Income:
In contrast to the federal estate tax which is the I.R.S. cut before the estate moves on to the heirs, and which most estates are small enough to escape, estates that earn more than $600 in a year face an income tax. The period during which an estate may be liable for the income tax is from the date of death of the decedent until the estate is distributed. Many estates never earn $600 in a year. For example, the estate could consist of a house that is never rented and never earns income. Or it could consist of bank accounts that at today's low interest rates don't pay interest equal to $600 a year or more. If the estate earns more than $600/yr. there are two options. First, the estate can pay the income tax by filing a 1041. If there are many heirs, this may be the most efficient way to go for all concerned. Or, the estate can file the 1041 and a K-1 stating what portion of the income tax each heir is liable for and that the tax liability passes on to the heirs. If there is only one or two heirs this may be the most efficient way to go. This is a question to be discussed with a tax accountant.
Decedent's Tax Return:
Suppose someone dies in April of 2014. The personal representative of the estate will have determine if the decedent filed a 2013 tax, if not, the personal representative will have to get one filed. If the decedent had enough income to be subject to income tax in the part of 2014 that he lived, then a Decedent's tax return from 2014 will also have to be filed. Depending on the complexity of the return and the ability of the personal representative, either the personal representative can do that or they can hire a tax accountant.
Taxes on IRAs:
Money in a traditional IRA (not a Roth IRA) is earned income that has escaped being taxed at the time it was earned. Also, interest, dividends, and capital gains earned within the IRA escape taxation until the money is taken out of the IRA. In a sense money in a traditional IRA comes with a built in tax lien. If a person takes this money out during their lifetime, they pay tax on the withdrawals as if the withdrawals were regular income. If a person dies with money in a traditional IRA and the IRA is paid out upon the person's death, tax is due on the IRA money as if though it were earned income.
Typically, IRAs are set up with a primary and a secondary beneficiary. These beneficiaries (the primary one if alive, otherwise the secondary beneficiary) may be able to roll over the IRA money of the dead person into their own IRA and thereby avoid immediately paying taxes on the IRA money. However, if a trust is the beneficiary of the IRA the tax on the IRA money may become due at distribution to the trust. On the other hand, there can be valid reasons for making the trust either the primary or secondary beneficiary. These include:
- If a minor is the beneficiary, a trust allows for control of the minor's money past the minor turning 18 and many clients desire this.
- If the primary and secondary beneficiaries die before the owner of the traditional IRA, the money in the traditional IRA will have to be probated at some expense and time delay.
In addition, the tax benefits of being able to roll over an IRA may or may not exist. The beneficiary may need the money immediately in which case there is no roll over. But, also, when the IRA money comes out it is taxed as ordinary income (unless there is an additional penalty for early withdrawal). The potentially lower tax rates on dividend and capital gain income is lost for a traditional IRA.
In conclusion, whether to put a traditional IRA into a trust is a very complicated matter that depends in part upon future events that cannot be predicted.
Nevada does not impose inheritance or estate taxes.
However, when real estate is transferred from one person to another there may be a real estate transfer tax. This issue is discussed on this website's page: Nevada Real Estate Transfer Tax
Timeshare Company Transfer Fees:
In addition to the expense of a Timeshare Probate the timeshare company usually charges a fee of $50 to $400 to record the transfer. This is why we encourage people to take title to timeshares as joint tenants with people they are likely to leave the timeshare to.
Nevada Real Property Transfer Taxes:
Each Nevada county imposes a transfer tax on real estate. See Nevada Real Estate Transfer Tax
for detail. But, the executive summary is this: If real estate is transferred by will from the person who died to the heir, there is no real estate transfer tax, but if owner dies without a will the new owner who takes under the law that says who gets what if a person dies without a will does have to pay the transfer tax unless the new owner was the child or spouse of the person who died.