Benjamin Franklin said, the only guarantees in life are Death and Taxes. Do I have to pay taxes after I die? I thought taxes would end when I did! While we are earning money, we get a W2 or a 1099 and we pay INCOME TAX. When we have investments that pay us interest income or dividend income or we sell an investment for a profit and have a capital gain we pay INCOME TAX. When we are retired and receiving retirement benefits we may pay INCOME TAX. And now you tell me I might have to pay taxes even after I die? If you leave too much money behind when you leave this earth, you may be subject to ESTATE TAX.  

I have a Will

“But I have a will. Doesn’t that make a difference?” A will is a legal document that determines how your assets are distributed after your death. Do you remember the board game Monopoly? “Go to Jail. Go directly to Jail. Do not pass Go. Do not collect $200.” Well, with a will you “Go to Probate. Go Directly to Probate… ” What is probate? According to Wikipedia, a probate court decides the validity of a will and grants its approval to the executor The executor is the person charged with having the legal power to dispose of your assets in the manner specified in the will. The court wants to make sure your wishes are followed. And probate takes time – sometimes a lot of time and it can take money for legal fees. Creditors need to be notified and given time to present their claims. Legal notices will be published to avoid IRS problems.  

I Don’t Have a Will

As many as 55% of Americans die without a will. Have you ever heard that making no decision is still a decision? Families are supposed to love one another, but things can get ugly very quickly when MONEY is involved. According to Morning Star.com, “If you don’t [have a will], the state will decide how your assets are distributed, and even who will be the guardian of your minor children. And once you have a will, it’s important to make sure it’s clear and up to date.”  

Advantages of a Trust

Why do I want to think about a trust? What can a trust offer me that a will cannot? Who never heard of Elvis Presley? He had a will. When he died in 1988 his estate was valued at over $10 million. The probate process fees and taxes cost over $7 million! His family would have received much more if he had had a trust. A trust is private, you avoid probate and IRS problems. While a will can be contested in court, it is much harder to challenge a trust.  

My Experience

This discussion is based on my own experiences and learnings. I am not an attorney and am not offering legal advice here. I do heartily recommend you consult with a legal professional when drafting important documents. I have worked with attorneys and other professionals to help my clients consider all the critical points in making their important decisions. My brothers and I were so very fortunate that our own parents had a Revocable Living Trust, an RLT. Revocable means that while my parents were alive they could revoke it, they could make changes. It was a living document while they were living. When my dad died, it became irrevocable. He wasn’t alive to make changes anymore. My mother became the sole owner of what had been their joint assets. Included in their RLT were a power of attorney for each of them while they were alive. There were medical powers of attorney for each of them so their medical care could be directed as they would have wanted if they were unable to voice that themselves. The trust document was clear about their end of life wishes. Each of my parents could specify what they wanted for themselves. After our mother’s death, I was appointed by their trust to see that her wishes were carried out according to her desires. Thankfully my brothers and I did not quarrel. We were able to distribute the assets fairly. Yes, there was sadness. But there was no battling. My parents did not have an estate large enough to have to pay any taxes at either death. They avoided the ESTATE TAX. But my brothers and I inherited. Did we have to pay an INHERITANCE TAX? There is no tax when you inherit property. There can be INCOME TAX if that inherited property provides you with income, like interested or dividends, like rental income, or like capital gains if you sell inherited property at a profit.  

The Bottom Line

Taxes do not always have to be paid at a death. But like anything else in life, it is better to have knowledge in advance so if you have a choice, you can make an informed decision and avoid IRS problems.   To your lowest legal tax, Nellie Williams, EA Bullet Proof Your Taxes