Other than conflicts among family members and probate avoidance, taxes are one of the top-cited concerns for those hoping to create a comprehensive estate plan. No one wants their legacy unnecessarily diminished by estate taxes, especially because they have already had to pay taxes on their income when they earned it.
If you plan to sit down soon to draw up your estate plan, taxes might be something you worry about. What taxes might theoretically apply to your estate after you die in Virginia?
Virginia does not assess inheritance or estate taxes
Some states tax the estate itself if its value is above a certain amount. Other states tax inherited property over a certain value, putting the liability on the heirs and beneficiaries rather than on the executor of the estate.
Virginia does not collect either of these kinds of taxes, although inheritance taxes from other states might apply if a beneficiary for a Virginia estate lives in a state with such taxes. That means you only have to worry about out-of-state beneficiaries and federal estate taxes. When you consider that the cutoff for estate taxes applying to your estate in 2021 is over $11 million, you may find that you don’t need to plan for that kind of taxation.
Your executor will need financial records to file your last tax return
Just because your estate won’t have taxes that apply directly to it doesn’t mean there aren’t still tax obligations for your estate. One of the most important duties of an executor is to pay all outstanding income taxes owed by the deceased party.
Executors typically have to file a final tax return and may also have to file an estate tax return if the estate itself qualifies for taxation. This process can increase how long probate takes, especially if the executor has to wait for employers or taxation authorities to provide duplicate documents.
Making sure that you have appropriate financial records in places where your executor can access them will streamline the process of them filing taxes on your behalf. Talking with an attorney about taxes and other concerns that might influence how you structure your estate plan and help you make the decisions that will best protect your legacy.