I am the sole heir, executrix and power of attorney of my uncle’s estate and would like to know if there is anything I can do now to avoid paying estate or inheritance taxes when he dies. He lives in NJ and I live in FL and because of his medical condition he is unable to perform any physical or mental tasks at this time.
Is there anything I can do to avoid paying inheritance or estate taxes?
Posted in Estate Planning. Tagged with anything, Avoid, Estate, Inheritance, Paying, Taxes, there.
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The estate pays the estate taxes, if any, not you. (Unless you do something stupid like distribute assets early without setting with the IRS first.) If he dies this year the Federal exclusion is $3.5 million so there won’t be any estate tax if the estate is worth less than that. It jumps to unlimited if he dies in 2010 but drops to $1 million for 2011 and subsequent years unless Congress acts to change the current law. (You can thank Bush’s tax cuts for that bit of folly. Nice way to pass a “tax increase” to a future administration for finger-pointing rights, IMHO.)
There are no Federal or FL inheritance taxes so you don’t need to worry about those. However NJ does have one and it’s payable since he is a NJ resident. Typically the estate pays it on behalf of the beneficiaries but if it doesn’t then you must. The rates depend upon the relationship between the decedent and the beneficiary.
Don’t get the idea that you can distribute anything early to avoid the taxes. You’ll run afoul of gift tax laws that will probably result in higher taxes in the long run since the lifetime gift tax exclusion is less than the estate tax exclusion (for now at least) and the two are linked dollar-for-dollar. Additionally any property transferred within 3 years of death is considered as having been transferred in anticipation of death and therefore is included in the gross estate valuation.
As an aside, unless the P of A is a durable P of A, his current mental state may have rendered it null and void.
He needs to die during the 2010 year. It is another law that focuses on dying, much like the proposed health care reform.
if there are assets to be distributed when he dies those will be taxable
it would seem prudent to use up as much of his assets as you can for his benefit while he is alive so there won’t be anything to be taxed on