Federal law may not be the law that governs wills and trusts, but federal law regarding taxes supercedes states laws and your tax obligations have to get paid eventually, even if it is after you are gone. Goodestate planning includes considering tax consequences of various estate plans both for your estate and the eventual beneficiaries. Any Palm Beach Probate Attorney who is helping you plan your estate should also take the time to explain to you the various taxes you may owe and what this means for your estate.
- The Federal Government knows people do not like to pay taxes so it institutes two good mechanisms to ensure that people do : surrogate taxation and penalties.
- Surrogate taxation means that the person who the government wants to tax may not be getting taxed but someone else does down the road. For example the government may tax children for the taxes that their parents did not pay before allowing them their share of an inheritance so the surrogate, the children are paying taxes owed by the estate (obv in order to access to assets of the estate, if the estate were insolvent you would have no obligation as an heir to the testator to pay their taxes)
- Penalties are the form of tax evasion deterrence that we are all most used to. If you do not pay your taxes, guess what now you owe more taxes. Estate taxes and late taxes from a decedent are no different, they are owed and they are accruing more interest as the days go by.
Whats interesting is sometimes people do not even know they owe a tax. I had a recent case where a woman bought a home from a foreign citizen and did not know she had an obligation to withhold 10% of the amount realized (purchase price) to give to the IRS because the IRS places that burden on her the purchasor rather than a foreign seller.This is just another example of surrogate taxation — the government just wants paid, they do not care by who most of the time.
So what can you learn here for your estate plan?
- Please just pay your taxes when they are due, you are not avoiding them you are just multiplying them and often to the detriment of your children or other heirs.
- Sometimes you may not even be aware that you owe taxes – look at the case above, who would guess that obligation to hold 10%? Either way the IRS will want their money, they do not take kindly to excuses.
- If you have an estate worth less than5 million you may not owe estate tax but other taxes will still be an issue.
If you have a question about taxes and estate plan contact an experienced Palm Beach Probate litigator rather than suffering the crippling tax penalties.