One of the questions I am regularly asked is,”Will my spouse/relatives/children
get taxed on their inheritance?” The answer varies in each circumstance,
but here some rules of thumb regarding estate tax:
Spouse: If your spouse is a U.S. citizen, they will not be taxed on your assets.
Children: Children-and anyone else to whom you leave your assets-will be taxed on
the amount you leave them over $5 million. Unless Congress renews the
law, the amount will drop to assets over $1 million in 2013.
Grandchildren: Grandchildren who directly inherit are charged a generation-skipping transfer
tax. A “skip person” is one who is two or more generations
below the transferor (in our example, the deceased). However, if the money
goes directly to pay for medical bills or education expenses, the tax
can be avoided.
Gifts: Remember, you do not have to wait until you pass to give money to friends
and family, up to $13,000 year can be given to an individual tax-free
during your lifetime.
People also erroneously believe that holding assets in a trust instead
of using a will document can avoid taxes. This is generally untrue. The
real benefit for the average family of holding items in a living trust
instead of a will is that it can avoid probate.
For assets that exceed $5 million, or $1 million should the law not renew,
proper estate planning may save you significant tax dollars. If you are
beginning to plan your estate, please consult a
Bay Area estate planning attorney in order to ensure that you can avoid pitfalls and take advantage of the
many benefits proper planning can provide.