If you were lucky enough to see money from an inheritance this year pay attention. Do you understand the tax implications for estate and generation skipping taxes? The personal representative of the estate of a U.S. citizen may be required to file a Form 706. How can you be sure?
Filing a Form 706
- There are two times when the personal representative of the West Palm Beach estate would need to file a Form 706.
- Do you know when they are?
- First if the deceased has a taxable estate, after accounting for taxable gifts, of at least$5.43 million.
- Second if the executor wishes to pass any unused exclusion amount to the decedent’s surviving spouse.
- This $5.43 million is known as the exclusion amount.
- it is the total amount of your estate that can pass to your heirs without being subject to estate or generation-skipping taxes.
- The amount adjusts for inflation every year as well so these figures will change in 2016.
- Both of these taxes are topped out at 40% so they leave steep penalties that many estate planners in West Palm Beach seek to avoid.
What does a Form 706 do?
- If you are currently serving as a personal representative you should learn what Form 706 does.
- This form will help you value the estate.
- When a person dies their heirs get what is known as a “stepped up basis” but do you know what that means?
- Basically the heirs have the cost basis jump up to the current fair market value of the inherited property rather than the basis the decedent had.
- The date at which that stepped-up valuation is assessed could make a big difference!
- The stepped up basis helps heir minimize the capital gains and possibly other taxes.
- Stepped up basis may be able to help your West Palm Beach beneficiaries to get more money and with the use of Form 706 this can all be simplified.
- Now what about generation skipping tax?
Generation Skipping Tax (GST)
- This tax is used to keep a person from skipping one generation to essentially leave all their wealth to grandchildren.
- Why does the federal government care what you do with your West Palm Beach estate?
- In essence if your estate is subject to the estate tax and you skip over your children to leave part or all to your grandchildren then that inheritance may also be subject to GST.
- Good estate planning is not just about writing a will, it involves intricate tax planning as well.
- If you are unsure what your estate’s tax liability will be talk to an experienced Palm Beach estate planner today.