What Does the IRS Include in Your Estate?


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After you pass away, your executor will be responsible for obtaining a tax ID number for your estate and filing an estate income tax return. For this reason, it is important to know how the IRS treats your estate at your passing. Additionally, you may be subject to the federal estate tax or the state estate tax based on the value of your probate estate. Understanding what the IRS considers as part of your estate and what is subject to estate tax is important in your estate planning. These issues are complex and require the expert guidance of a Boston tax attorney.

Probate Assets
In Massachusetts, if your probate estate is worth more than $1 million, it may be subject to state estate taxes. This is a much lower threshold than the $11.4 million exemption limit for individual taxpayers for the federal estate tax. Generally, your tax liability is based on the value of your probate estate. This is any property that you owned at the time of the death that did not automatically transfer to another owner. For example, if you owned real property as joint tenants with the right of survivorship with another person, the property would pass to the other person and would not be considered part of your probate estate.

You may have additional estate planning tools in place to minimize the value of your estate. For example, P.O.D. designations can transfer the funds in your financial accounts to the person you name at the time of your death, T.O.D. designations can transfer ownership of securities and beneficiary designations can transfer retirement fund accounts when you pass. You may have also transferred property to a trust.

Income-Generating Assets
You may have certain assets that are part of your estate that generate income, such as CDs, stocks, bonds, mutual funds and rental property. The income that your assets generate is also part of your state and may trigger the need for your executor to file an estate income tax return. The estate’s gross income is calculated similarly to how it is calculated as an individual. However, one big difference is that your estate can receive an income distribution deduction for distributions it makes to your beneficiaries.

Your estate may be required to make quarterly estimated income tax. Form 1041-ES, Estimated Income Tax for Estates and Trusts explains more about this process.

The estate income tax return is filed on or before April 15 of the year following the death.

Contact an Experienced Boston Tax Attorney for More Information
If you would like assistance with minimizing your tax liability at the time of your passing or more information on how the IRS analyzes the various assets of your estate, contact Boston tax attorney Gerard Levins. He can provide you with targeted legal advice based on your particular circumstances and can offer legal solutions that are tailored to your individual needs. Call today to schedule your free consultation.

Gerard Levins
Levins Tax Law, LLC
www.levinstaxlaw.com