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Estate Planning: Issues With Transfer on Death Tax Plans

Estate Planning: Issues With Transfer on Death Tax Plans

When you receive an inheritance, it can seem like your lucky day. Yet, you may find that your luck runs out when the IRS becomes involved. It can come as a surprise to some that an inheritance is subject to taxation. This includes property received through a transfer on death account. As a creator or recipient of a transfer on death account, there are some important considerations.

Personal Tax Issues

When creating a transfer on death account, be aware of the tax implications. With this type of account, the creator retains control over the funds through his or her life. This means that if you withdraw the money, you will have to pay taxes on the amount. Furthermore, if you receive interest or dividends from the account, tax will also be due.

Inheritance Tax Issues

Some states impose an inheritance tax. This type of tax applies when someone receives money from the estate of another. This could include a transfer on death account. In some situations, it may be possible to qualify for an exemption from the tax. An estate law attorney can help you determine if such an exemption is applicable. Fortunately, the state of Utah does not have this type of tax. However, it is still possible to encounter tax problems if you receive such money from another state.

Note that inheritance tax differs from estate tax. The former is the responsibility of the beneficiary. The latter is a tax paid by the person who created the estate while estate taxes are footed by the estate itself. This is an important distinction to realize.

A Look at Estate Taxes

Transfer on death accounts are not immune from the estate tax. It is a common misconception that these accounts do not go through the estate tax process. Utahahans also have nothing to worry about when it comes to a state-based estate tax. No such thing exists under Utah law. Nonetheless, the federal estate tax law is still applicable. An estate attorney can help determine what is required to comply with the federal law.

Capital Gains Issues

Some transfer on death bank accounts provide capital gains. These are the profits related to the increase in an investment's value. For example, some people keep their brokerage accounts under transfer at death status. According to a state's estate law, this means these stocks could be taxed according to their appreciation. Generally, the relevant tax rate is dated back to the time of death. If you need assistance with the tax consequences of a brokerage account transfer, contact an estate lawyer.

Final Considerations

When you really think about it, there are a lot of different reasons to consult an experienced attorney regarding a transfer on death account. Although these accounts are usually intended to avoid probate, there can be a host of other issues that arise. When in doubt, seek out an estate attorney for more assistance.

To get help with probate or estate law in Utah, contact T.R. Spencer Law Office.

estate planning, tax plan