I must be getting old…

Common probate issues which a probate attorney can rescue you from

Because I find myself reading estate tax articles I used to skip:

As another generation of Americans begin aging into their golden years, the realities of passing along what they have earned throughout their lives to their children becomes a high priority. For a large number of people, that means making annual contributions to an IRA. But what many fail to realize is that when it comes to estate taxes, a person’s IRA is viewed as a part of the person’s taxable estate.

In a case where a taxable estate is greater than the federal and state exclusion amount, a person will have to pay estate taxes. For instance, if the taxable estate was greater than $5.43 million in 2015, the federal rate could be up to 40%. Since estates are set up on a per-person basis, a married couple may be able to plan to maximize the use of the exemption, providing coverage for over $10 million of the couple’s assets.

However, when a person is aware that they are in poor health and have an IRA with a great deal of money, an estate attorney may suggest a “deathbed Roth conversion.” A Roth IRA is a retirement account that allows people to pay taxes on the money going into the account rather than when they take the money out of the account. A conversion allows a person with an IRA to convert it to a Roth IRA before death as a means to pay the income taxes up front and to reduce the size of their estate.

In many cases, this deathbed conversion strategy is generally unnecessary since IRD exists which is meant to get rid of any need for an IRA conversion. IRD or Income in Respect of a Decedent tax allows for IRA beneficiaries a tax deduction for estate taxes paid by the original owner of the IRA. While IRD deductions are meant to protect beneficiaries from federal estate taxes, deathbed conversions can be beneficial for state estate taxes.

According to Trust and Estates Attorney Kerri Castellini, “Many people are surprised when a loved one dies as to how much of their estate is subject to taxes and it can be quite a shock. It is important that they understand all the options open to them, so that planning for estate taxes can occur prior to death.”

A person will need to consider the best timing and strategy to ensure that the person is able to achieve the lowest tax rate. When planning an estate, it is essential that a person do what is legally necessary to pay as many taxes before his or her death to minimize the size of the estate.

I don’t really have any money, and I doubt I ever will. But you never know!

4 thoughts on “I must be getting old…

  1. Et tu Susie? Planning to win the lottery before you die? The estate tax has no application to the middle class or what’s left of it. Lacking any affordable elder car system, the Boomers and our parents are living beyond the point of dementia. The end stage need for nursing home care triggers a medical assistance lien that is equivalent to a 100% estate tax. Try to plan your way around THAT.

  2. People with Hillary or Trump kind of money keep it and their tangible assets in trusts.
    They receive a salary as an officer of the trust to meet their personal living expenses.
    That’s how new money gets to be old money.
    As a famous blue-blood once said, “Only the little people (suckers) pay taxes.”

  3. “I find myself reading estate tax articles I used to skip” Hehe, no kidding. And when I try reading them, I immediately know why I couldn’t before. Same thing on articles on receding hairlines and expanding waistlines and caps vs. implants and etc etc etc.

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