By Lane V. Erickson, Idaho Estate Planning Attorney
Throughout the history of the world death and taxes have always been linked together. In fact, according to Benjamin Franklin, they are the only two sure things in life. Most people understand that the IRS is careful in making sure that it collects all the taxes that are owed by a person individually while they are alive. What most people don't understand is that the IRS has the same approach even after a person has died. This is because after a person dies, they may still owe taxes to the IRS. Additionally, after a person dies, if an estate is created, the estate may also be required to file an income tax return with the IRS. While this can be a complicated issue for many people, the good news is that our team of Boise estate planning attorneys have been helping clients deal with death and taxes for over 70 years. As a result of this, we are confident that we can help you too.
At the Racine Law Office we have created a team of skilled and experienced Boise estate planning attorneys to help each of our clients and their families and loved ones resolve any issues that involve death and taxes. Regardless of whether a probate is required to be filed, we help our clients and their families resolve all probate and tax related issues that could arise. Our goal is to make sure that the specific instructions left by our clients are carried out and that distributions are made to the beneficiaries chosen by our clients. Our skill and experienced team is made up of partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley each of whom have knowledge that can help with all estate planning and probate issues including taxes.
To help you in understanding whether you and your family should consider speaking with an attorney, here are the three main taxes that you should be aware that may arise when a person passes away. These taxes may affect your Boise estate plan:
1. The Final Income Tax Return for the Person Who DiedWhen it comes to discussing estate planning and taxes we find that most people understand that individual income tax filings still need to be done for a person even after they pass away. For example, it really doesn't matter whether a person passes away in January or December of a year. If that person lived for any portion of a year, an individual income tax filing should be done for them. This is regardless of whether there was any income earned or not. The reason for this is that if there was any income then a regular income tax filing needs to be done anyway. However, even if no income was earned, the IRS should still be notified that this person passed away and that this will be the final filing for them.
Regardless of whether a person earned income or not, the income tax filing should indicate that the person is deceased. This can be done by writing the word "deceased" and including the person's name and date of death across the top of the tax return. When this is done, the person should also check the "yes" box on the bottom of the last page in the third-party designee area of the tax document. The reason for this is because it allows the IRS to talk with that individual about the tax return for the person who passed away. This will likely be a family member or the personal representative of the decedent.
2. Estate Income Taxes - If the Estate Produced IncomeIn addition to filing a tax return for the decedent it's possible that there may also be a need to file a tax return for the estate. Not every estate is required to file a tax return. The IRS requires an estate to file a tax return anytime the estate itself earned income in an amount of $600 or more during any given year.
This most commonly occurs when there is either a business the decedent owned that continues to operate and generate income or when there is some other asset in the estate that generates income. Most people can easily understand how this works when there is an income-producing property such as an apartment complex. In this instance, the estate now owns the apartment complex. When rent is paid, it will likely result in income for the estate of more than $600 in a given year. When this is the case, the estate is required to file its own tax return reporting this income and paying any applicable taxes that may arise.
Keep in mind, there may be instances where a person had an ownership interest in an entity such as an LLC. In this instance, if any income was produced in the LLC, it actually would pass through to the individual and be reported on their individual tax return. If the income produced is paid to the estate, then it would be the estate that would be required to file a tax return for that business income. Additionally, the LLC will still be required to file its own tax filings as was done previously before the person passed away. While it may sound complicated, a qualified estate planning attorney can help you navigate whether there are any estate income taxes that must be reported and paid to the IRS.
3. Taxes on the Value of the Estate - The Dreaded "Death" TaxThe final type of tax that may exist that families and their loved one should be aware of is the dreaded death tax. What does simply means is that if the value of the estate is above a certain dollar amount there will be a tax assessed for the value of that dollar amount. There are 12 different rates for this tax that range from 18% all the way up to 40% depending on the amount of the estate that is taxable. If the amount is $1,000,000 or more the tax rate is 40%. The tax rate then decreases for the lower brackets until it reaches the lowest rate of 18%.
The bad news is that these tax rates are high. The good news is that we are really only talking about very large estates that have these tax rates applied to them. In 2017, a married couple could have an estate all the way up to $11 million in value before any death tax would be applied. Then, at the end of 2017, President Donald Trump instituted a new tax plan that doubled these amounts for 2018. As a result, a married couple would now have to have an estate larger than $22 million in value before any death tax applies. As a result of these changes, most people don't need to worry about the death tax.
However, if you are fortunate enough to have an estate that will be subject to the death tax, there are still many things that you can do to limit the amount of taxes you need to pay. These include using good estate planning tactics such as trusts and other options that may limit the size of your estate that would be subject to the tax.
Enlist a Boise Estate Planning and Probate Attorney to Help YouOur experienced Estate Planning team of attorneys can help you and your family with your Boise estate plan or with your probate needs. Whether you are seeking your own customized Estate Plan or are in need of a Probate for a loved one who has passed, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation with the Racine Olson team. You can also email us directly at racine@racinelaw.net. We will answer your questions and will help you solve your Boise Estate Planning and Probate problems.