Law News and Tips
Taxes and Death
TAXES AND DEATH
Fred L. Vilbig © 2018
Tax Day is just around the corner.For those getting refunds, the date is probably irrelevant. You’ve probably already filed your tax return, deposited your refund check, and bought that big screen TV.
Tax Day is much more relevant for those who still owe some taxes. They may still be gathering information for their preparer.They most certainly are trying to figure out where they are going to get the money to pay the remaining taxes due.And they resent the fact that it costs probably over 50% of their earned income to be an American.
Yes, between state and federal income taxes, personal property tax, real estate tax, and sales tax, a number of people pay over 50% of their income in taxes.Sure there may be some who can avoid paying some of their taxes by making certain investments and things, but that is a very small number of people. The vast majority of American citizens don’t have those kinds of options. They have to work for a living, and so they pay taxes, and lots of them.
One of the only remaining (legal) tax savings (and it’s really only a tax deferral) options open to taxpayers is saving for retirement. It used to be that employers provided pensions to workers, and it was up to the company to worry about how that was going to get funded. Government employees (including teachers) still get this. But those days are gone.
For most of us, we have to take money out of our paychecks and put it in 401(k)s or IRAs. Although that can be painful now, it is critically important for the future. Although some people have gotten lazy and think that the government will take care of us all through Social Security and Medicare, Social Security checks don’t really go that far. And since the US has to borrow literally billions of dollars each year just to keep this flimsy boat afloat, who knows how much longer we can keep plugging the fiscal holes with foreign money.It’s a scary thought, so putting money away for retirement is absolutely critical.
And for those who have saved money, what happens to it if you die unexpectantly. I often have clients tell me they just going to live until they run out of money. The problem is no one really knows when that day will come.
So you do need to plan for that. If you’re married, your retirement money will probably go to your spouse. On the death of the second of you to die, you probably have named your children as the beneficiaries. The problem is that inherited IRAs can be taken away in lawsuits, and they can even get caught up in divorce settlements.If you don’t do any planning, then within five (5) years of your death, the government can take a huge chunk of your hard-earned money in taxes.
Although we surprisingly still get a lot of pushback from financial advisors on this, the best plan for retirement assets after a spouse is a trust. In 1999, the IRS gave us some “magic” language that allows us to do that. IRAs that go through a trust are protected from bankruptcies and court judgments, and they should never enter into any divorce settlement discussions.In my opinion, it’s the best way to go. But like I said, we still get pushback for some reason.
Call me to discuss further.It would be sad if all that money you worked so hard to save just went up in flames … I mean taxes …wait, that’s kind of the same things, isn’t it.
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