(NBC4law.com) — As an estate planning lawyer, I get asked a lot, “Do we need to worry about taxes on our estate?” Estate taxes are something that most people know about and are worried about.
When Estate Taxes started, it was a fairly low thresh hold and taxed at a rate in excess of 40%. Over the years, that threshold has increased and so many people realize that they do not necessarily have a tax on their estate.
Under Federal Law, an estate is not taxed on its value alone until it is well in excess of $5 million dollars. This has led to some complacency, and we have found that one of people’s largest assets is their retirement account.
Your retirement account can be an estate tax ticking time bomb. How it is taxed is not an estate tax, but an income tax on your retirement funds. You spend your life accumulating your assets for retirement; you look at your estate to see what you are going to pass down to your kids and that is one of the big assets that you think is going to pass down to them.
Before your children will get your money from your income that you have saved for your retirement, Uncle Sam is going to take his bite. When Uncle Sam takes his bite, it’s going to be a big bite. It could be 30% give or take. Over the years you have accumulated tax deferred which is a benefit. If your children inherit your money from your retirement account, they need to pay the taxes on it. If things are not done correctly, that can come out in a very short period of time after you pass away.
With proper tax planning, your kids can reap the benefits of that money for years to come without having that immediate tax implication.
So, do we need to worry about taxes on our estate? The answer is yes, because for most people one of the single biggest asset if not the biggest asset is their retirement plan. When you pass away it’s time to pay the tax man.Please note that this is not legal advice, and we recommend that you consult an attorney such as our NBC4Law partner the Law Offices of Dupont & Blumenstiel.