For the last few years, the rap on the estate tax is that unless you’re extremely wealthy, you don’t have to worry about it anymore. That’s true to some considerable extent. After all, the federal government has exempted most people making less than $5.43 million this year, and many states have gotten rid of or raised the tax threshold of their own estate taxes as well (though unfortunately Massachusetts is not one of those states).
In fact, MarketWatch and The Wall Street Journal report, “Only one out of every 600 deaths this year will trigger federal estate taxes.”
That doesn’t mean death is “free,” though. Alas, inherited retirement accounts still face steep taxes. That’s right — just when you thought the “tax man” had given a pass to passing away, he’s back for your loved one’s retirement funds.
“If you bequeath, say, a stock in a regular taxable account that has climbed in value, the cost of the investment for tax purposes automatically rises to its current value as of your death,” MarketWatch explains. “This ‘step-up in cost basis’ means that the potential capital-gains tax bill can disappear.”
For conventional retirement accounts, though, beneficiaries will still have to pay income taxes on those withdrawals. That includes 401(k)s.
So is it true what they say about death and taxes, then? Maybe, but you aren’t without options. While modern estate planning is less fixated on estate taxes than it used to be, there’s still a lot we can do to help you strategically bequeath your assets to your loved ones.
At O’Connell Law, we emphasize a multi-faceted approach to estate planning, making use of trusts and strategic financial planning to minimize tax burdens and put your family in the best possible position after you’re gone. Give us a call to find out how we can help.
