People are often confused regarding what taxes and other expenses must be paid out upon an individual’s death. Frequently, people believe that once a person passes away, the beneficiaries receive their inheritances, and they then pay taxes on the value of those inheritances. And that’s it.
In actuality, things don’t work that way. Before anything is distributed to beneficiaries, an Executor (usually someone named in the Will) must identify all of the deceased’s assets. These assets comprise the deceased’s estate. The estate may include, among other things, cash, savings accounts, IRA’s, 401K’s, stocks and bonds, real estate, jewelry, artwork, furniture, etc. The value of the estate is established based on the assets.
A. Once the estate’s value is ascertained, the following occurs:
1. Federal and New Jersey Estate Taxes
– For estates valued at or below $5,450,000 in 2016, no Federal estate taxes are paid. Federal estate taxes are paid on amounts above $5,450,000.
– in New Jersey, for estates valued at or below $675,000 in 2016, no New Jersey estate taxes are paid. New Jersey estate taxes are paid on amounts above $675,000.
2. Federal and New Jersey Income Taxes
– Based on income generated by the individual during the year in which he died, Federal and state income taxes are due.
– All outstanding bills (e.g., credit cards, contractors, etc.) and any other financial commitments made by the individual prior to his death (such as funeral arrangements) are paid out of the estate.
B. Only after all of the above are resolved are beneficiaries entitled to receive their inheritances. There are often tax implications for beneficiaries as well. These issues will be addressed in a future post.
Getting Legal Help:
Experienced Estate Planning Attorney, Elga A. Goodman, can help you navigate through the numerous tax and inheritance issues that arise when a loved one dies. Contact us today at 973-841-5111.
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