The Tax Issues A Person’s Estate Will Face After Death

When a person dies their estate could be subjected to a wide range of tax liabilities.  Even though most estates will not meet the minimum threshold needed to be liable for the Federal estate tax, they could still be on the hook for other state and federal taxes.  Some states have their own estate taxes, and there are also income taxes imposed on heirs who inherit certain retirement accounts. 

Heirs could face even more tax liabilities in the future if congress gets rid of the “stretch” IRA, which currently allows the IRA beneficiary to draw down on the account over time at a slow pace.  If this “stretch” IRA disappears then the beneficiaries would have to draw down on the IRA account within five years of the decedent’s death which could push them into a higher tax bracket.  This column gives advice on various techniques that could be used to avoid or minimize these potential tax liabilities.   

See Jonathan Clements, Another reason to worry about dying: taxes, Market Watch, June 15, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.