An adult who is establishing an estate plan typically has to identify the assets they need to address. They also need to decide who they want to receive their property after their passing. Often, the focus on resources and beneficiaries can leave people with inadequate estate planning protection.
After all, certain personal responsibilities can still crop up after someone dies and interfere in their plans to pass their assets to specific beneficiaries. Taxes are one of the obligations that can significantly reduce the overall value of someone’s estate.
The best time to address tax liability is during the creation of an estate plan. Testators can potentially minimize the taxes that may apply to their estates with careful planning. What taxes do people often need to address when establishing an estate plan?
Income taxes
One of the most important elements of estate administration involves the fulfillment of the decedent’s personal responsibilities. The personal representative of their estate has to pay creditors and fulfill someone’s tax obligations. They typically file a final income tax return on behalf of the decedent. They may also have to pay income taxes if the estate liquidates resources during the probate process. Ensuring there are resources set aside the cover income tax obligations can prevent tax payments from diminishing what beneficiaries receive.
Estate taxes
Technically, individuals don’t have to worry about Virginia estate taxes after they die. Virginia does not levy estate taxes against the property that belongs to an estate or inheritance taxes against those who receive property from an estate. Of course, federal estate taxes might still apply. Estates that are worth $13.61 million or more could be subject to estate taxes at the federal level. Advance planning is generally the only way to mitigate that risk by diminishing the value of the estate.
Capital gains taxes
Technically, capital gains taxes are the responsibility of estate beneficiaries in most cases. When they decide to sell inherited property, they may have to pay taxes based on the appreciation in asset value since the original date of acquisition. Capital gains taxes may apply to real estate holdings and other high-value assets. Testators who plan carefully to address their most valuable assets can help protect their beneficiaries from tax obligations that can cause financial headaches for several years after someone dies.
Those with high-value assets are at particularly high risk of tax complications during the probate process. Creating an estate plan that acknowledges tax issues can help someone maximize the positive impact that their legacy has on others. Taxes are one of several obligations that people can minimize with appropriate planning.