When a person dies, their closest family not only has to cope with their loss but also to deal with a lot of formalities. For example, they need to take care of the probate advance and the inheritance tax.
An inheritance tax should be properly distinguished from an estate tax, according to the international tax law. The first one is paid by a person who has inherited money or property of the dead person, while the second one is a levy on the estate (including both property and money) of this person. However, such a clear distinction is not always visible in every country.
When you are still alive, it is worth taking all the necessary steps to cut the inheritance tax, so that most of your estate could end up in your relatives’ pockets. In order to help you with that, we have prepared a list of the top four ways to achieve it.
According to Wills Trusts LPA London, preparing a will is the central aspect of estate planning because it allows you to make sure that assets are dispensed in accordance with your decisions. If there is no will, assets need to be divided in the way that intestacy rules order, and can be liable to an inheritance tax which could otherwise be evaded. It is crucial to take care of the will as soon as possible in order to make sure the potential inheritance tax bill will be maximally lowered. Also, keep in mind that an inheritance tax does not work with assets inherited by a spouse.
Normally, the fair market value of the property on the day of decease constitutes the basis of the property in a decedent’s estate. However, it happens that the executor may select the alternate valuation date, namely six months after the day of death. This option is possible only when it can reduce both the estate tax liability and the gross amount of the estate. As a result, this can end up with a bigger inheritance to the beneficiaries. If a property is sold or disposed of before that six-month period is over, it is valued on the date of the sale. Also, provided that the estate is not subject to the estate tax, the day of death is the valuation date.
Some may perceive that as counter-intuitive, but it happens that donating a part of your inheritance to others really makes sense. Apart from the fact that you can help people in need in this way, potentially, you can also offset the taxable income of your inheritance with the tax deduction obtained for supporting a charity.
Also, if you want to leave more money to your family when you pass away, think about making annual gifts to your beneficiaries when you are still alive. You can always give a particular amount to each person without having to pay the gift taxes. As a result, you will not only provide your loved ones with an immediate profit, but you will also lower the size of your estate, which can be crucial if you are close to the taxable value. To make sure you are staying up to date with the frequent modifications in the estate tax laws, you should consult an estate planning professional.
If the inherited retirement assets are not distributed, they are not taxable. Some rules may apply when the distribution must happen, but only if the beneficiary is not a husband or wife.
In a situation where one of the spouses dies, the other one typically is able to take over the IRA as their own. Minimal distributions would start at the age of 72, the same as they would work for the spouse’s own IRA.
If the inherited retirement account belonged to someone else than your husband or wife, the funds could be transferred to an inherited IRA in your name. You need to start taking minimum distributions the year of or the year after the inheritance - it also applies to people who are not 72 years old yet. If a decedent was older than you, you might think about choosing the “single life” method of counting the necessary amount of distribution, based on your age. Your minimal distributions will reduce, which means you will have to cover less tax on them, and the money can grow for a longer time.
These are just chosen ways to make your inheritance tax lower, and in order to get more help in this issue, you can contact an experienced and knowledgeable professional. Your future beneficiaries will surely be grateful for taking all the steps to make them receive as much money as possible.