Estate planning and tax liability

On Behalf of | Dec 22, 2017 | Firm News, trusts

North Carolina residents who leave property to their loved ones may not realize how taxes can affect beneficiaries when they inherit an estate. South Dakota Congresswoman Kristi Noem has come forward to warn others about how the federal government’s “death tax” has affected her family. However, according to some experts, it is possible that the problem could have been avoided with a different estate planning strategy.

The will bequeathing ranch land to her family was created in 1974 and was never updated between 1981 and 1994. According to one tax expert who reviewed probate records released to a statewide database, had the will been modified in 1994 based on the law in effect at the time, the family could have possibly avoided any estate tax liability. If the will had been modified under current law, the family would likely have no liability whatsoever.

While the congresswoman has cited the case as an example of heavy tax burdens, tax experts have pointed out how specifically the will could have been modified to avoid them. The Kemp-Roth Tax Cut of 1981 included provisions to help avoid any estate tax liability if the estate passed to a surviving spouse. Instead, the family faced an estate tax bill of nearly $170,000 on an estate worth close to $2 million.

Careful estate planning can sometimes help beneficiaries avoid tax penalties and other costs. An estate planning attorney may be able to help clients decide which option is right for them. For example, in some cases, an attorney can help clients create a trust to minimize estate taxes for beneficiaries and provide other benefits, such as helping the beneficiaries avoid the costly probate process. Selecting the right type of trust is an important part of the process.

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