10 Steps You Can Take Today to Protect Your Child’s Inheritance
This guide will help you protect your child’s inheritance, so you can prevent future unintentional missteps.
Taxes can quickly become complicated when you have to deal with the federal Internal Revenue Service and the Virginia Department of Taxation at the state level. Understanding what you owe is important to avoid penalties. The Virginia trusts and estates lawyers at Melone Hatley, P.C. are knowledgeable about Virginia tax codes and can help with your tax planning.
What is Estate Tax?
In property planning and management, estate tax may be an additional financial burden imposed on a property transfer. Most Virginia residents, or those who have a smaller amount of assets, do not need to file an estate tax return.
As of 2017, a filing is only necessary for estates with combined gross assets and prior taxable gifts exceeding $5,490,000. Should the estate exceed that amount, all property and assets will be accounted for and given a fair market value, which totals the gross estate.
After deductions, which may include debt, estate expenses, and property that passes to a spouse or charity, you will arrive at the taxable estate amount. Though probate will likely be necessary, there are several steps that you may take to minimize your estate tax while you are still living.
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Methods for Reducing Virginia Estate Taxes
Depending on your specific circumstances, we may advise one or several of the following:
- Making annual gifts that fall under the threshold of taxable giving by the IRS
- Creating a joint title on the property to provide for easier transfer of ownership
- Gifting an asset to freeze its value and reduce the amount of taxes paid after you die
- Forming a family LLC to transfer ownership of an asset to multiple parties
- Using a trust to transfer ownership and avoid probate
Will I Have to Pay Taxes on an Inherited Property in Virginia?
If you inherit a property in Virginia, you will likely have to pay capital gains taxes, or taxes based on the value of the property as though it increased your earnings. You will also be subject to probate tax. Probate tax is imposed on estates that are worth more than $15,000 unless the property meets very specific qualifications.
An inheritance tax also applies to any property that is owned by tenants in common, up to the value of the interest the decedent held in the property. It also applies to any property that is passed to a beneficiary in the decedent’s last will and testament.
How Do I Avoid Inheritance Tax in Virginia?
According to the Virginia Department of Taxation and under Virginia law, there are a few ways that properties can pass without taxes being imposed. A property worth $15,000 or less is not subject to probate tax. Likewise, if a property meets the following qualifications, it is not taxed:
- The property is passed by power of appointment.
- The property is jointly held with a right of survivorship (such as a house passing from one spouse to another).
- Insurance proceeds are given to a named beneficiary like a life insurance policy.
- Bonds are made payable after death to a specific named beneficiary.
What is a Credit Shelter Trust?
A credit shelter trust can help those who wish to rely on something other than portability to protect assets under tax law. Portability refers to the unlimited deduction that married couples have to transfer property from one to the other. However, it can result in losing eligibility for some individual estate tax exemptions once both spouses pass away.
If someone leaves $5 million to their spouse who already has a substantial net worth of $6 million, for example, the beneficiary spouse will be tax-exempt for this bequeathment. When the second spouse dies and leaves the estate to their children, however, the estate can only be exempt for the second spouse’s individual tax exemption, not the first spouse’s.
In addition, to get this portability, an estate tax return is required within nine months of the first spouse’s passing, even if no taxes would otherwise be due. A credit shelter trust does not require an estate tax return to provide similar protection. State tax law and federal tax law can be very complex, and the right tax lawyers can make all the difference in your estate planning efforts. If you need assistance with Virginia estate planning, contact the estate planning and tax lawyers at Melone Hatley, P.C.
Do You Need an Estate Tax Planning Attorney?
Dealing with estate tax planning can become very complex very quickly. If you are not properly prepared, your beneficiaries could end up paying far more in state and federal tax liability than anyone anticipated. The right tax attorney law firm whose practice areas cover estate tax issues can make all the difference. Our Virginia tax attorneys have years of experience with estate tax matters, tax disputes, tax audits, and other tax issues related to estate planning.
We can help you set up the right trusts and tax shelters to protect your assets, whether they are real estate, cash, or family heirlooms. We can help see that your estate safely passes to the beneficiaries you desire and that your family members and loved ones get as much of your estate as possible within the bounds of the law.
Are You Expecting to Pay an Estate Tax?
Taxpayers can easily be caught off-guard by tax liabilities they did not realize they would have. These tax issues can quickly drain an estate if the decedent did not make the proper preparations. The estate tax attorneys at Melone Hatley have years of experience in dealing with estate planning issues across the state of Virginia. We serve clients from Northern Virginia down to Hampton Roads, including Fairfax, Richmond, Arlington, Alexandria, Leesburg, Reston, Herndon, and Virginia Beach.
We can help you with issues of tax compliance in your estate to make sure that everything is in proper order and sheltered so that your family legacy passes as you wish. Several of our attorneys are listed on the Super Lawyers and Rising Stars lists for outstanding performance, and we deeply value every client relationship we build.
If you have not begun your estate planning, it is never too late. Let us help you avoid tax controversies with your estate.
