Funeral Estate Tax Planning
Estate and Inheritance Tax Questions to Ask
After Grieving the Death of a Loved One
When suffering from the grief and loss of a loved one, it can be the most painful and stressful time in our life. It’s important to surround our selves with close family or friends as a support system.
The experience is one that can seem like time is standing still because of the grief, but at same the time, it can be quite overwhelming and as if time were flying right past us. When someone we love passes away, there are so many details that need to be considered while grieving. That process in-and-of-itself can be painful. Funeral arrangements, memorial services, obtaining death certificates, and legal matters are all part of the details involved in losing a loved one.
Things like inheritance and estate tax issues don’t need to be addressed immediately. Focusing on our friends and family are obviously more important. But eventually the details will need our attention.
Helpful Considerations When Facing a Loss:
Is Life Insurance Taxable?
While life insurance proceeds are included in the estate, they are not taxable (as income) to beneficiaries. However, you should contact the life insurance company to understand the procedure to cashing in their policy. Typically insurance companies will require a claim form and death certificate. But generally, life insurance is not taxable to inheritors. (Click to learn more about burial insurance and/or funeral insurance)
What is My Inheritance Tax Rate?
Inheritance tax will vary from state-to-state. Typically if the value of the estate that’s being inherited is high in value, your tax rate will be higher as well.
For example, tax preparers in Indianapolis, Indiana will tell you that Indiana’s inheritance tax system breaks the heirs or inheritors into three classes or groups. Systems in Pennsylvania are very different. For Indiana, each group has different rate schedules and exemptions. Here’s how this looks according to the Indiana Department of Revenue:
• Class A – direct ancestor or descendant, stepchildren, direct descendant of a stepchild: $100,000 exemption.
• Class B – siblings, descendants of sibling, spouse, widow or widower of your child: $500 exemption
• Class C – anyone else excluding spouse: $100 exemption
Are Bank Accounts Taxable?
Revenue-producing assets like bank accounts and stacks are not taxable upon inheriting them. However, the income that these assets generate is taxable to the recipient.
What About Pensions and IRA’s
A person inheriting a pension or IRA is required to pay taxes on the amount received, as the decedent (person who is deceased) would have during their life. An IRA or similar fund can be rolled over tax-free into the beneficiary’s name and treat it as their own.
While things like estate and inheritance tax is, by no means, the most important item to address when we suffer the loss of a loved one, it is important to understand what is and is not taxable during these times. Estate and inheritance taxes can be burdensome and stressful, but in some cases, an inheritance is not taxable to you.
Estate lawyers are available to help guide us during times of funeral estate planning, but they can often be costly. Check with your tax preparer or attorney handling the estate as to what you need to know when sorting out inheritance and estate issues.