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TABLE OF CONTENTS |
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Q. | What steps should I take regarding the deceased's assets? | ||||
A. Check with your financial advisor as to how you should handle the following assets of
the deceased. Some general rules of thumb are:
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Q. | How can I avoid overpaying for the funeral of a family member? | ||
A. The best way to avoid overpaying for a funeral
is to plan ahead. Further, it pays to
know about the "Funeral Rule," the regulation of the Federal Trade Commission
(FTC) concerning funeral industry practices. The Funeral Rule provides that:
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Q. | What Social Security benefits are surviving family members entitled to? |
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A. The deceased is considered covered by Social Security if he or she paid in to Social
Security for at least 40 quarters. Check with your local Social Security office or call
800-772-1213 to determine if the deceased was eligible. If the deceased was eligible,
there are two types of possible benefits. One-Time Death Benefit Social Security pays a death benefit toward burial expenses. Complete the necessary form at your local Social Security office, or ask the funeral director to complete the application and apply the payment directly to the funeral bill. This payment is made only to eligible spouses or to a child entitled to survivor's benefits. Survivor's Benefits for a Spouse or Children.If the spouse is age 60 or older, he or she will be eligible for benefits. The amount of the benefit received before age 65 will be less than the benefit due at age 65 or over. Disabled widows age 50 or older are eligible for benefits. The spouse of the deceased who is under 60 but who cares for dependent children under 16 or cares for disabled children may be eligible for benefits. The children of the deceased who are under the age 18 or are disabled may also be entitled to benefits. |
Q. | What is probate? | |
A. Probate is the legal process of paying the deceased's debts and distributing the
estate to the rightful heirs. This process usually entails:
The spouse or personal representative named in the will must file a petition with the court after the death. There is a fee for the probate process. Depending on the size and complexity of the probable assets, probating a will may require legal assistance. Assets that are jointly owned by the deceased and someone else are not subject to probate. Proceeds from a life insurance policy or Individual Retirement Account (IRA) that are paid directly to a beneficiary are also not subject to probate. |
Q. | Can I refuse to accept property bequeathed to me by a family member so as to cut taxes? | |
A. The disclaimer is a way for you to refuse all or part of property that would otherwise
pass to you, via will, intestacy laws, or by operation of law. An effective disclaimer passes the property to the next beneficiary in line.
The fact that the property is treated as if it had passed directly from the decedent to the next-in-line beneficiary may save thousands of dollars in estate taxes. The provision for a disclaimer in a will and the wise use of a disclaimer allows intra-family asset shifting and income shifting for maximal use of the estate tax marital deduction, the unified credit, and the lower income tax brackets. Disclaimers can also be used to provide for financial contingencies. For example, you can disclaim an interest if someone else is in need of the funds. |
Q. | What taxes are due upon the death of a family member? | |
A. Here is a summary of the various taxes that may have to be paid on the death of a
family member:
Federal Estate Tax. Estate tax is generally only due on estates exceeding the unified credit exemption equivalent, which for 2002-3 is $1,000,000; for 2004-5 is $1,500,000; for 2006-8 is $2,000,000; for 2009 is $3,500,000 (with a scheduled repeal thereafter). Contact the IRS for a Form 706 if you need to file an estate tax return. A federal estate tax return must be filed and taxes paid within nine months of the date of death absent extension. State Death Taxes. State laws vary, but generally any estate which pays a federal estate tax must also file a state estate or death tax form and pay the state death tax. This amount is paid by the estate to the state in which the deceased lived. For details, contact your state tax department, for which a telephone listing can be found in the government section of your telephone directory. State Inheritance Taxes. Again, state requirements vary. Most states charge no inheritance tax. For more information, contact your state tax department. Income Taxes. The federal and state income taxes of the deceased are due for the year of death. The taxes are due on the normal filing date of the following year, unless an extension is requested. The spouse of the deceased may file a joint federal income tax return for the year of death. A spouse with a dependent child may file jointly for two additional years. The IRSs Publication 559, "Information for Survivors, Executors and Administrators" may be helpful. |
Q. | Can I file a joint return for the year my spouse dies? | |
A. Yes, the surviving spouse can elect to file a joint return provided they did not remarry prior to the end of the tax year. |
Q. | Must I pay taxes on the proceeds of a life insurance policy payable to me? | |
A. Generally, no. Proceeds of life insurance policies are not taxable income unless the
recipient paid for the right to receive them. For example, if you purchased a policy as an
investment. |
Q. | If I receive distributions from a retirement plan or an IRA of the deceased, must I pay income taxes on the distribution? |
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A. Generally, yes. This is known as income in respect of a decedent. Since the deceased
has not paid income tax on the distribution, the tax is owed by the recipient. If the
value of the account was included in the decedents estate tax return, you may be
entitled to a deduction for a portion of the estate taxes paid. |
Q. | How will my spouse's assets be distributed if he/she died without a will? |
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