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| Monday, May 12, 2003 | (2 comment(s))
ESTATE PLANNING with Christopher Yugo
Several weeks ago, I wrote an article on jointly held property. Since that article ran, I have received numerous phone calls and letters from readers who wanted me to clarify one issue or another.
It's not unusual to get feedback on my articles, but usually the comments are from attorneys or accountants who point out something that I left out or wasn't clear on. You know the "hey numbskull, what about this?" phone call. However, the responses from readers were something I had never before encountered.
Essentially what I have taken from these calls is that there is a lack of understanding of estate taxation. In reviewing my past articles, it has come to my attention that I haven't written a thorough explanation of death and taxes in a long time. So here ya go. The next couple of articles are going to teach you everything you ever wanted to know about death and taxes.
The first thing to keep in mind is there are a lot of different taxes that can be assessed when a person dies. The first, and probably the one most of us think of as the death tax is the federal estate tax. The tax is collected by the Internal Revenue Service and is assessed upon the total value of your property on the date of your death or the alternative valuation date, which is six months after your death.
Now as many of you know, the estate tax has been in the news in recent years. The common view is the tax doesn't apply unless your estate is valued at $1 million or more. That's sort of true, but not exactly. Actually, all estates are subject to the estate tax, however, the IRS gives you a tax credit, which equals the amount of estate tax assessed upon the first $1 million of taxable assets. The net result is there is no estate tax due on estates valued at less than $1 million.
The second tax assessed at death, and the one most of you should be concerned about, is the Indiana inheritance tax. The inheritance tax is a distributive tax. Most of you probably are asking, "What is a distributive tax?" Basically the inheritance tax is assessed upon what an individual actually receives as a result of your death. Keep in mind this is different from the estate tax, which is assessed upon the total value of your estate. The inheritance tax is calculated on what each of your loved ones actually receives.
The reason inheritance tax is assessed on a person's distributive share is because there are different tax rates and exemptions for classes of heirs. Inheritance tax rates and exemption amounts essentially are determined by the degree of relationship the heir has to the decedent. Although I'm going to discuss this in detail next week, think of it this way: the closer the family relationship, the lower the tax rate and the higher the exemption amount. For example, spouses receive the most favorable tax treatment while children are treated more favorably than nieces and nephews. The rule of thumb is: the closer the blood relationship, the better the tax treatment.
The final tax I will discuss is the income tax. Both federal and state governments assess income taxes. From an estate planning perspective, the income tax usually is involved when the decedent owned a tax-deferred asset such as a 401k, IRA or U.S. Savings Bonds. The assets usually are those the government allows to grow tax exempt until you start taking out the money.
There are other taxes that may apply, such as the generation skipping tax and the Indiana estate tax. However, I'm not going to discuss those here because of the complexity and the limited space.
Next week I'll discuss how some of these taxes are assessed and calculated. Until then, let me leave you with a quote from William Feather: "The reward of energy, enterprise and thrift n is taxes."
Christopher W. Yugo is a member of the Indiana Bar and a vice president and trust officer for Centier Bank's Trust Department. Address questions to Yugo in care of The Times, 601 W. 45th Ave., Munster, In 46321. The information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant, or estate-planning specialist.
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jodi wrote on Aug 16, 2008 6:25 PM:
rh wrote on Oct 29, 2007 8:51 PM: