Estate Planning & Taxes: Why Planning Now Saves Your Family Later

Most people know taxes are a part of life, but fewer realize they’re also part of death. When someone passes away, their estate may be responsible for paying several types of taxes — and without a proper estate plan, those taxes can reduce the amount your loved ones inherit.

The good news? Many tax strategies used during your lifetime can also be part of a smart estate plan — like investing in life insurance or annuities. With the help of an estate planning lawyer, you can reduce the taxes owed after your death and make sure more of your assets go to your family, not the IRS.

Taxes That May Be Due After Death

Here are some common taxes that may apply when someone passes away:

• Federal income taxes on any income earned up to the date of death.

• Income taxes on the estate during the administration period (if assets keep earning income).

• Gift taxes if significant gifts were made before death.

• Capital gains tax on any assets sold in the year of death.

• Federal estate tax, also known as the “death tax.”

Without planning, these taxes can quickly add up. For example, if your estate sells a piece of real estate shortly after your death, capital gains tax may be due on the sale. Or if your estate exceeds the federal estate tax exemption, the IRS could take a big portion before your heirs see a dime.

What’s the “Death Tax” and Should You Be Concerned?

The federal estate tax — sometimes called the “death tax” — applies to estates that exceed a certain value. This isn’t just calculated based on what you own at death. It can also include certain gifts or transfers made before you passed away. That’s why understanding your gross estate is key, and why it’s best to work with a lawyer or accountant to run the numbers.

If your estate owes this tax, your executor (the person handling your estate) must file Form 706 and decide which assets will be used to pay the bill.

While there have been efforts in Congress, like the Death Tax Repeal Act of 2015, to eliminate this tax, it remains in place today. Although the exemption amount changes over time, families with high-value homes, retirement accounts, or life insurance policies could find themselves affected — especially if laws change in the future.

Estate Planning Isn’t Just for the Rich

One of the biggest myths about estate planning is that it’s only necessary for the wealthy. In reality, everyone benefits from having an estate plan — no matter the size of their estate.

Even basic planning can help:

• A Last Will and Testament outlines who gets your property and who will handle your estate.

• A Revocable Trust can help avoid probate and keep your affairs private.

• Life insurance policies, even affordable ones, can help cover funeral costs and provide for your family.

• Burial insurance ensures loved ones don’t face financial strain during an already difficult time.

• Health care directives and powers of attorney give others the legal authority to help if you become seriously ill or incapacitated.

If you have children, estate planning is also how you legally name a guardian or set up a trust to help them pay for college or other needs.

A Smart Move for Your Legacy

Estate planning doesn’t have to be complicated or expensive — but it does need to be done. With the help of a Florida estate planning lawyer, you can take advantage of tax-saving strategies, including:

• Funding a life insurance policy to pass on wealth tax-free;

• Setting up an annuity that benefits a surviving spouse or child;

• Creating trusts to control how your assets are used after your death.

Annual reviews are also important, since both tax laws and personal circumstances can change.

Bottom line? The cost of doing nothing is often greater than the cost of getting a solid estate plan in place. Taking action now can save your family stress, time, and money down the line.

Don’t leave your loved ones with more tax than they have to pay. Speak with an estate planning lawyer to create a plan that protects your family and your legacy.

For more information, contact our office at Askew & Associates, P.A. by calling 954-546-2699.

Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns.