Inheritance taxes can be applied by the state as well as the federal government, each under different names. In some cases, they can be as much as 40% and come from the individual, not the estate. While you’re deciding where your assets go when you die, you might also consider the tax issues that come with them.
Create a Trust
An irrevocable trust in the individual’s name allows you to withdraw money as you see fit, but also gives them some control over when they get the funds and hence, when they will pay the taxes. Instead of getting it all in a lump sum, they can take it out in small allotments, potentially based on the current tax rate. A trust doesn’t have to go through state probate.
Give Money Away
If you have money put aside to be handed down, why wait until your death to see your loved ones use it? As of 2016, you can give an individual up to $14,000 without having to pay a gift tax. Doing this may also bring down the size of your overall estate so that less taxes will be due on it overall, and your loved ones may be able to avoid inheritance tax altogether.
Funds are not taxable until they are distributed or property is assessed. By moving an inheritance to an IRA and taking the minimum distributions, they may be able to avoid dealing with hefty taxes applied all at once. When it comes to assets, descendants can opt for the alternate valuation date, which is six months after the death of the person providing the inheritance. Anything sold in that six months will be assessed based on the value the date of sale.