Peace Of Mind For Your Family And Your Future

Do not saddle heirs with tax burdens

On Behalf of | Nov 23, 2020 | Estate planning

Many decades of relatively high earning power and the accumulation of valuable assets make it possible to leave a financial legacy to your heirs in Delaware and other states. When it comes time to distribute assets to your heirs via an estate plan or through the probate process, some financial gifts might prove more burdensome than you intended.

Some gifts trigger high taxation

Estate planning tools help to ensure that financial and other assets are distributed in the manner you choose after your estate debts are settled. Some financial gifts come with hidden traps that can ensnare beneficiaries and cause them more problems than intended. One or more 401(k) or IRA accounts that have significant amounts make anyone other than a surviving spouse immediately liable to pay income taxes on those amounts as income. Some beneficiaries also might be forced to withdraw IRA or 401(k) funds within a decade to transfer them to personal retirement accounts. That could trigger a massive tax liability and short-term financial burden that you never intended.

Many gifts do not trigger taxes

While some financial assets trigger immediate income taxation liabilities, others do not. A valuable property that has greatly appreciated in value and that you leave to one or more heirs does not trigger a tax liability. The beneficiary would only have to pay taxes if he or she chooses to sell the property and is not liable for taxes based on the appraised value or other valuation factors.

A Delaware attorney who is experienced in estate law may help you to better understand state and federal law regarding gifts to beneficiaries. An attorney may also explain the potential tax implications and other issues.