Taxes are stressful throughout one’s adult life, and they can be just as stressful in death. When a person dies, a couple of tax burdens may arise such as federal estate tax and sales tax on funeral expenses. It’s important to understand these tax requirements so you can make the best possible financial plan for your estate and your family.
Federal Estate Tax
When a wealthy person dies, he or she may owe estate taxes. These taxes come into play when a person is worth over $11.4 million, though this number is expected to drop significantly in several years. As much as 40% of the deceased’s assets can be taken as tax. Notably, the assets taken into consideration are not just the contents of one’s bank account. Personal possessions, life insurance policies, and investments count, too.
Funeral Taxes
As crazy as it sounds, your family members may even have to pay sales tax when they prepare your funeral. The rules regarding funeral taxes vary greatly from state to state. In some states, only tangible goods, such as caskets and flowers can be taxed. In others, services such as embalming and transporting the body can be taxed, as well. Because funerals can easily cost as much as $12,000, the total sales tax charged could be significant.
Tax Deductions
Fortunately, there are several factors that may decrease a person’s federal estate tax burden. For one thing, your worth may be calculated quite differently if you are married, as your spouse owns 50% of your assets. You can also gift money to loved ones or make charitable donations. The former decreases your overall worth, while the latter qualifies you for tax deductions. Unfortunately, funeral expenses are not tax-deductible.
Other Money-Saving Strategies
A good way to ensure your family will have the resources they need to plan your funeral is to purchase a life insurance policy. Additionally, some people choose to make detailed plans for their own funerals when they form their will and trust. This way, your loved ones won’t feel pressured to overspend on the funeral. You can cut back on funeral expenses by using your home for the memorial service or by choosing cremation over traditional burial.
Making a Plan for Your Estate
No matter what stage of life you are in, it is prudent to make plans for the unexpected. An experienced trust lawyer in Des Moines, IA can provide the guidance you need to ensure your family has financial stability following your death. A premiere legal firm like Law Group of Iowa can help you design a will that meets your goals and protects your family from burden.