Estate Planning and Income Taxes

There are many important reasons to have a detailed and personalized estate plan, including making your wishes for advanced health care known, placing the apportionment of your estate in the hands of someone you trust, and making sure your assets are distributed to your chosen beneficiaries.  There are many moving parts to making sure that your estate plan not only accurately reflects your wishes, but also that the logistic issues are taken care of.  One of the logistics that you need to keep in mind when planning your estate is income taxes.

Even after you pass away, it is possible that your estate will continue to generate income.  Your personal representative is responsible for gathering your assets, including this income.  Income generated after your death could include income from the sale of real estate, interest earned on high yield investment accounts, or, most commonly, income from your job that is paid after your death.  If your estate has a gross income of six hundred dollars or more for the tax year, your personal representative will be responsible for filing federal income tax form 1041.  As taxes can be complicated, it is usually best for a personal representative to seek the assistance of a CPA or other tax professional to ensure that all the assets and income are properly included.

In terms of crafting your estate plan, there are some techniques you can employ to reduce the chances that your personal representative will have to file income taxes for your estate.  These techniques typically include making sure that your assets pass outside of probate.  Transferring your assets to a trust, holding real estate as a joint tenant, or having a bank account listed with payable on death benefits are just a few ways that you can make sure that your assets are transferred without having to pass through probate.  These techniques make it such that at the time of your death, the assets are not part of your estate, and therefore if those assets generate income, the income will not be part of the estate or make the estate subject to paying income taxes.

If you have questions about how to craft your estate plan to protect it from income taxes, call us today at 651-413-9568.  We can talk with you about your estate plan and how to make sure your goals are achieved.