Tuesday, February 19, 2013

Death and Extra Taxes

Jack has recently learned that taxes are maybe even more certain than death.  He is serving as the executor of his mother’s estate after her death last year. 

Not only does his mother, through him, have to file a final IRS Form 1040 annual tax return, he will have to file an IRS Form 1041 annual tax return for her estate, if there is income from her assets after her death (from interest, dividends, sales, or rent, for examples).

There is also a totally different tax return that could be required – but only if his mother’s assets add up to over $5 million.  It is IRS Form 706, which is the estate tax return.  Illinois would start collecting at $3.5 million.

Her ‘taxable estate’ is the combined value of everything she owned when she died and all taxable gifts she gave while alive.  She ‘owned’ everything she could have decided to give to anyone at the time of her death.  That includes – contrary to common belief – life insurance benefits, joint accounts, IRAs and almost any other thing of value. 

Shockingly, estate tax laws have actually improved for the 99% in recent years.  Of course, the New Year’s Eve/Day fiscal cliff tax compromise was long overdue.  But it was better than expected in the estate tax area, as we will explain next week. 

For advice figuring out what the IRS insists on knowing after death, and planning options to reduce after-death taxes, call our office at (815) 436-1996 for an appointment.  © 2013 Gruber Law Office, Ltd.


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