Estate Planning Resources
Understanding Estate and Inheritance Taxes
Protecting Your Family & Your Assets
Your Loved Ones Don’t Have to Pay the Price
When planning your estate or putting your will together, there’s a massive question you may have overlooked. Will your loved ones have to pay taxes on what you leave them?
The answer isn’t so simple.
The estate and inheritance taxes your family will owe depends entirely on the types of assets you’re passing down, where you live, and how much you own.
Don’t worry though. Understanding how different accounts are taxed can help you protect more of your wealth for the people you love.
Unpredictable Federal and State Estate Taxes
It’s not really possible to know exactly what the federal estate tax exemption will be when you pass away.
What is the federal estate tax exemption?
The estate tax exemption is the dollar amount of an estate that can’t be taxed by the federal government.
In the past, the federal estate tax exemption has been as low as $675,000. However, it’s much higher right now. In 2026, the federal exemption sits at $15 million for individuals or $30 million for married couples. If your estate falls below this mark, your loved ones won’t pay federal estate taxes.
Note that some states impose their own inheritance taxes that have much lower exemptions.
If you’re married, it’s critical to update your estate plan if your spouse passes to preserve those full tax exemptions.
Want to Minimize Your Family’s Tax Burden?
Don’t leave your beneficiaries struggling with unexpected tax bills. Talk with us about a strategy that protects your hard-earned assets.
The Estate Tax Isn’t the Only Tax
Income tax and capital gains taxes may also impact your estate, even if your estate’s value falls under the estate tax threshold. Remember, taxes on your estate are really taxes on your family members or others who you leave your assets to.
How can you minimize the burdens these taxes will have on those you care about?
You need a specific strategy for every type of asset you own.
Each of your assets may be taxed differently once they’re passed on. For those who inherit them, some assets may also come with a high tax bill while others might not be taxed at all.
To help you know what the tax burden on your estate could look like, here’s a breakdown of how the most common types of inherited assets are taxed.
How Different Assets Are Taxed:
- Cash and Bank Accounts: This one is straightforward. If you leave someone $50,000 in savings, they get the full principal amount without having to pay federal income taxes on that amount. The one exception is that if a bank account earns interest after they inherit it, that interest then becomes taxable.
- Investment Accounts: Stocks and mutual funds get a massive tax advantage called a “step-up in basis.” If you bought stock for $10,000 and its value grows to $100,000 by the time your family inherits it, they won’t pay any capital gains tax if they decide to sell the stock immediately. This effectively erases your lifetime capital gains for your family.
- Traditional Retirement Accounts: Accounts like 401(k)s and IRAs are much more complex. Your beneficiaries will owe ordinary income tax on every dollar they withdraw from these types of retirement accounts.
- Roth IRAs: Roth IRAs offer a distinct advantage. Since the money you put into a Roth IRA has already been taxed, in most cases your beneficiaries receive these funds completely tax-free.
- Life Insurance: Death benefits from life insurance usually pass to your beneficiaries tax-free. Be careful though, because if you own the policy yourself, it could be counted toward your taxable estate for estate tax purposes.
The 10-Year Rule for Retirement Accounts
A relatively new law affecting retirement accounts could lead to more of your family’s money going to the federal government.
Until recently, there was no time limit for withdrawing money from an inherited retirement account. You could stretch out payments from an inherited account over your lifetime if you chose to.Then the SECURE Act became law in 2019. That law requires anyone who inherits a retirement account from someone other than their spouse to empty the account within 10 years.
This compressed timeline can easily push your children or other family members into a higher tax bracket if they aren’t strategic about their withdrawals.
Spouses, however, have more flexibility and can roll an inherited account directly into their own IRA.
Strategic Planning Makes All the Difference
Tax laws change frequently. Having ongoing guidance from someone that knows you and your financial situation can ensure your estate plan doesn’t leave your family with heavy tax burdens.
You don’t have to figure out estate and inheritance taxes on your own!
We can talk you through the different options that will help your family the most.
Those options may includes leaving taxable assets to family members who can handle the taxes and tax-free accounts to those who can’t. We may also recommend an irrevocable trust that keeps your estate’s value within the estate tax exemption.
Inheritance Taxes – Common Questions
Navigating estate tax laws can feel overwhelming, but finding the right answers is easier than you think. Here are straightforward answers to some of the most common questions from families about estate and inheritance taxes.
Will my family pay taxes on my life insurance policy?
Usually, life insurance payouts are completely income-tax-free. However, if you own the policy that covers your own life, it might trigger estate taxes for very large estates. We use tools like irrevocable trusts to remove the insurance from your taxable estate and you’re your family members pay less.
Should I gift my stocks now or leave them in my will?
It’s often more tax-efficient to hold onto appreciated assets until you pass away. If you keep those assets now and then leave them to your family, they’ll get a “step-up in basis” that basically does away with the capital gains tax bill you accumulated during your lifetime.
How are inherited bank accounts taxed?
The principal amount in a checking or savings account passes to your beneficiaries completely tax-free. They will only owe taxes on any interest the account earns after your death.
You’ve worked hard for the assets you’ll pass down to your family.
Make sure they get to keep as much as possible!
Let us help you create an estate plan that minimizes taxes and maximizes what your loved ones inherit from you.
Schedule your free, no-obligation consultation. We’ll get to know you and create a plan for you that meets your specific needs.
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