When an individual dies, he or she leaves behind an estate that is comprised of all assets owned by the decedent or in which the decedent had any ownership interest, at the time of death. Those assets must pass through the probate process before they can be transferred to the intended beneficiary or legal heirs of the estate unless the decedent left behind an estate plan that allowed for the assets to pass outside of the probate process. If you are a named beneficiary or legal heir of an estate you may have a number of practical questions regarding the probate of the estate and the fate of assets owned by the estate. For example, if you expect to receive gifts from the estate you may be wondering “Do I pay taxes when someone leaves me money?”
Wondering whether you will owe taxes on an inheritance is a perfectly normal concern, particularly if you expect to inherit a sizeable estate. The good news is that under almost all circumstances you will not owe federal taxes on an inheritance. Taxes owed on assets gifted to beneficiaries, either during your lifetime or at the time of death, are paid in the form of federal gift and estate taxes by the estate. In other words, any taxes owed are paid by the estate, not the beneficiary or heir.
There are, however, some tax issues that you need to be aware of if you inherit from an estate. The most important of those is usually capital gains taxes. You will not owe capital gains taxes when you receive gifted assets; however, you may owe them when you sell those assets. For example, if your mother leaves you the family residence in her Will and you turn around and sell the home a year later you may owe capital gains taxes on any gain realized from the sale. Another tax issue to be aware of is state inheritance taxes. Some states impose an inheritance tax at the state level that could result in a significant tax obligation to the state.
The best way to ensure that you understand any potential tax implications of an inheritance is to consult with an experienced New York estate planning attorney as soon as you are made aware that an inheritance is coming your way. Even better, make sure your parents, grandparents, or anyone else from whom you expect to inherit, sit down with an estate planning attorney to create an estate plan that includes tax avoidance strategies whenever possible.
If you have additional questions or concerns about estate or inheritance taxes, or about estate planning in general, contact the experienced New York estate planning attorneys at The Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.