Estate Income Tax Return Essay

712 Words 3 Pages
Filing the estate income tax return is a complex undertaking for the common executor. Fortunately, at the federal level, filing the estate income tax return is required only if the earned income after death reaches $600.00 or more. So, with proper planning, you could minimize the income earned by the estate after death and avoid the estate income tax entirely.

According to the article Track the Estate Income, the four common types of income that keep earning after death are the following:
1. Interest Income
2. Dividend Income
3. Rental Income
4. Capital Gains

To minimize the income earned after death, it is imperative to identify the assets in your estate that will earn income and plan accordingly. The following tips are ways you could
…show more content…
It is essential to list beneficiaries to your 401(k), IRA, etc., because failing to do so will produce income for the estate when the executor closes these accounts. As a result, the amount will exceed the $600.00 threshold forcing the executor to file the estate income tax return. By listing beneficiaries to retirement accounts, the accounts become property of the beneficiaries, not the estate.

• Own rental property in joint tenancy. In simple terms, when one owner dies, ownership of the property goes to the surviving joint tenant. So, any rental income in this situation is not income of the estate. However, joint tenancy isn’t so simple. There are many forms of joint tenancy that are regulated by state law. As a result, there may be situations that force the property into formal probate such as both joint tenants dying at the same time. A living trust may be a better option for your real property. Refer to the book Plan Your Estate by Nolo for a more in-depth look into this topic.

• Set up your bank accounts as Payable on Death Accounts (POD). Like retirement accounts, POD accounts let you list beneficiaries to your bank accounts. Upon your death, the accounts become property of the beneficiaries. Any income earned is taxed to the beneficiary. This sounds nice in theory but some states won’t allow POD accounts. Contact your bank and ask about POD
…show more content…
Like POD accounts, TOD accounts allow you to add beneficiaries to your accounts. All property in the TOD accounts will transfer to your beneficiaries after death. Any income earned after death will be taxed to the beneficiaries. Again, some states don’t allow TOD accounts. So, contact your broker and ask about TOD accounts. Also, in some states you can apply a TOD registration to cars and other assets such as your home. So, you can do a lot with TOD registrations, if allowed in your state.

• Give your taxable assets away while you are still alive. You and your spouse may gift up to $14,000.00 each before you are required to file a gift tax return. So, you and your spouse can give each prospective beneficiary $28,000 without any tax consequences. This tactic will certainly reduce taxable income to your estate after death. Also, you get to witness how the beneficiaries will use your money as an added benefit. This option is typically used when the beneficiaries are your

Related Documents