If you’re a co-owner of a joint bank account with rights of survivorship, you may be wondering what happens if the other owner passes away.  Here’s an overview:

No Probate

This type of joint account is a non-probate asset, so the account will pass directly to you, outside of the probate process.  Generally, all that’s required to remove a decedent’s name from a joint account is to present a death certificate to your financial institution and fill out the required paperwork.

Final Bills

Generally, just the fact that you’re the co-owner of a joint account does not make you personally responsible for paying the decedent’s final bills or debts.  But, if the two of you had other connections, then you may be on the hook for some bills or debts.  For example, if you co-signed or guaranteed any of the decedent’s debts, then you’re responsible.  If you have questions in this area,  you’d be wise to check with an attorney.

Income Tax

For interest-bearing accounts, there will be income tax considerations.  Of course, from the time your co-owner passes away, the account is yours, and this means that you’ll pay income tax on the account earnings.

What about income tax for the period immediately before the decedent passed away? That will be handled the same way it was during the decedent’s lifetime.  So, if the two of you split the income taxes during the decedent’s lifetime, then the decedent’s final tax return will reflect half the income tax liability for the account, and you’ll be responsible for the other half.

Estate Taxes

Even though joint accounts are non-probate assets, they’re still counted as the decedent’s property for estate tax purposes.  If you’re the decedent’s surviving spouse, then 50% of the account’s value will be included in the decedent’s gross estate for estate tax purposes.  If you’re not the decedent’s surviving spouse, then 100% of the value will be factored into the estate tax calculation.  And, if the decedent’s estate has an estate tax bill, a portion of it might be paid from your joint account.

To discuss futher how the death of a co-owner could affect your Estate Plan and the taxes or debts you owe, we invite you to call us for an appointment – (336) 547-9999.

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.

This year, there’s been a lot of talk about the repeal of the federal estate tax. Many people assume that the terms “estate tax” and “inheritance tax” mean the same thing, but they’re actually two separate and distinct types of tax.

An estate tax is one that’s assessed based on the gross value of a deceased person’s estate.  Several estates have an estate tax and, starting again next year, so will the federal government.  There’s an estate tax exemption amount, which varies depending on the state.  This exemption amount means that only estates that are above a certain value are subject to taxation. 

An inheritance tax, on the other hand, is based not on the total value of a deceased person’s assets, but on the amount that an individual heir or beneficiary inherits from a deceased person.  In all states that collect an inheritance tax, the spouse of a deceased person is exempt from the tax.  In some states, so are children and grandchildren.

North Carolina does not have a state estate tax, nor does it have an inheritance tax.  However, like residents of all 50 states, North Carolina residents are subject to the federal estate tax.  This means that, if your net worth is large enough, you’d be wise to ask your estate planning attorney about methods for minimizing your tax liability.

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.

The status of the federal estate tax is in limbo.  The tax has been suspended for this year.  However, unless Congress takes action and passes new legislation, the estate tax is scheduled to come back starting January 1, 2011, at a rate of 55% and with an exclusion of only $1 million. 

This means that, if things don’t change, anyone who passes away in 2011 or later with a net worth of more than $1 million will have an estate that’s subject to a 55% tax.

There have been proposals introduced in Congress to increase the amount of the estate tax exemption and to reduce the tax rate, but so far, it doesn’t look like any serious legislative action will be taken until well into the fall.  It’s possible that nothing will be done until after the elections, leaving any changes until the very last minute.

So, how do you plan amid all this uncertainty?  First, it’s important to have the guidance of an estate planning attorney who is experienced in dealing with tax issues.  He or she can help you make sure that your estate plan is flexible enough to see you through any immediate changes Congress may have in store.  Second, it’s more important than ever to review your estate plan frequently.  The events of this year are a reminder that, even if you haven’t experienced any personal changes, the law can change in ways that can dramatically affect your estate plan.

We would be happy to take some time to sit down with you and review your plan and how it would potentially be impacted by tax law changes.  Call us for your appointment today – (336) 547-9999.

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.

The federal estate tax is a tax on assets transferred to your beneficiaries when you die.  It has been repealed for the year 2010, but as the law stands now, the tax is scheduled to return in 2011.

In determining your estate tax liability, the first step is figuring out the value your “gross estate”.  Your gross estate includes all of the property you owned or had an interest in at the time of your death.  This includes:

• Real Estate
• Life Insurance
• Cash
• Securities
• Qualified retirement accounts
• Annuities
• Certain other property

The value of your gross estate is the fair market value of all this property on the date of your death.

Once the value of your gross estate is calculated, your estate tax deductions and exemptions are subtracted from your gross estate.  Common estate tax deductions include:

• Mortgages
• Funeral Expenses
• Debts of the Estate
• Property passing to a surviving spouse

After the deductions are subtracted out, the estate tax exemption is applied.  The exemption is the amount of property that’s allowed to pass on to your beneficiaries, tax-free, in any given year.  For 2011, the estate tax exemption is scheduled to be $1,000,000.  The amount left after all deductions and exemptions are subtracted out is the amount that’s actually taxed.  For 2011, the tax rate is scheduled to be 55%.

If your estate has to pay estate tax, then your executor will have to file the appropriate tax return and pay the tax within nine months of the date of your death.

One benefit of a good estate plan is that it can help you minimize your estate tax liability.  No one is really sure what Congress will do about the estate tax in the coming years, but a qualified estate planning attorney can help you develop a flexible estate plan. With a flexible plan that’s regularly updated, you can ensure that as much of your wealth as possible ends up in the hands of your loved ones, and not the IRS.

Our knowledgeable team at The Law Offices of Cheryl David are ready to meet with you to ensure that you have an estate plan that minimizes any tax liability and weathers changes in the tax law.  Call us today:  (336) 547-9999.

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.

Although the estate tax is currently repealed, it is expected to come back full-force in 2011. Here’s a few ways to plan for the return of estate taxes.

Spending

If you can afford it, spending your estate funds may help to reduce your taxable estate. Consider this a chance to do some major traveling. This can help your family members, but depending on what you spend, they may receive less from your estate. Using spending as a way to reduce estate taxes should be used sparingly since no one knows when they will die and how much they will need for living expenses until then.

Gifting

If your estate is sizable, you can reduce estate taxes by giving items to loved ones that you intend to Will to them later. You must be aware of gift tax limits, however. You can give up to $13,000 per family member each year. In your lifetime you have a gift tax exemption of one million beyond the $13,000 yearly limits. And as I mentioned earlier, you must be careful to preserve enough to live off of.

Create Foundational Estate Plans

When you anticipate your estate will receive a certain amount of federal or state taxes, you can use an AB or ABC Trust to help the remaining spouse avoid taxes. Such a trust divides up the estate assets in order to put off taxes until the second spouse has passed away.

Advanced Planning

Speak with your attorney to determine what types of advanced estate planning may work for you to avoid estate taxes. Some popular options include leaving a charitable trust that can be used as a tax deduction.

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.

“My father in law died and as executor my wife is setting up payments through probate. We’re getting mixed signals on who to pay first. If we choose to pay outstanding bills and run out funds, who is responsible for the deceased state taxes afterwards that are owed to the Dept of Revenue?”

The estate is responsible for the payment of the state taxes. Under NC law, the state taxes have a level 5 priority on the list of debts which are to be paid. You need to check NCGS 28A-19-6. All debts must be paid in a certain order and failure to pay them properly may make your wife liable. So, I recommend that your family seek legal advice, so that everything is done properly and she doesn’t have to worry that creditors will seek action against her personally if a mistake is made.
This attorney is licensed in North Carolina and 1 other state.
This answer is for informational purposes only and should not be construed to create an attorney client relationship.
Law Offices of Cheryl David
5606 W. Friendly Avenue
Greensboro, NC 27410
(336)547-9999
cheryl@cheryldavid.com
www.cheryldavid.com

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.

“My dad passed away 4/14/09 and I am administrator of his estate. I have no money for a lawyer so I have been trying to settle everything myself. I have researched and know I do not have to file federal or state estate taxes, but I can’t find anything out about county taxes.”

I’m truly sorry about your loss, but I commend you on trying to probate your Dad’s estate yourself. This is no easy task and there are a lot of landmines, which make the executor personally responsible if they do the wrong thing. I always recommend that legal advice be sought when handling a probate to avoid future problems. Also, the estate pays for the process, not you personally, so the savings are often quite minimal to know everything is done right and won’t come back to bite you in the future. With this said, if you don’t owe federal estate tax, then you don’t owe state estate tax and there is no county tax, outside of the fees associated with administering the estate through the county court house. Current fees are 40 cents on every one hundred dollars of probate assets. There are also fees for the death certificates, filings and newspaper publication. Best of luck in your endeavor, but again, I suggest that you get an attorney.
Sincerely,
Cheryl David
Law Offices of Cheryl David
5606 W. Friendly Avenue
Greensboro, NC 27410
(336)547-9999
www.cheryldavid.com
cheryl@cheryldavid.com
The above answer is not intended to create an attorney client relationship. It is for informational purposes only. An attorney will only be able to give specific reliable advice after hearing detailed information, and asking the appropriate questions.

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.

Under existing law, next year, 2010, is supposed to be the one year there isn’t any estate tax in this country. However, it appears that the first steps have been taken to make sure that doesn’t happen.  On December 3, 2009, the House of Representatives voted to cancel the repeal and extend the current estate tax on estates over 3.5 million, indefinitely. Now, we will have to sit back and see what the Senate will do. They have until midnight December 31, 2009 to figure things out.  Will they get the sixty votes needed to change the law?  Will estate tax be repealed?    Stay tuned . . .

The Law Offices Of Cheryl David is a member of the American Academy of Estate Planning Attorneys.