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
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