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Taxes and estate implications after death

On Behalf of | Oct 5, 2022 | Estate Planning |

When a person dies in the state of Washington, the courts will refer to that person as the “decedent” during court probate proceedings. The decedent’s property will be divided according to the terms of their estate plan or by the state’s intestacy laws. For example, an estate plan might include legal instruments like trusts and a will.

Different types of taxes after death

One objective of an estate plan might be to minimize tax liability. If the decedent’s estate owes state or federal taxes at the time of their death, they must pay before the decedent’s heirs inherit assets. The estate files a final tax return for the decedent. Additional taxes applicable after a person’s death are estate and inheritance taxes. The exemption for federal estate taxes currently sits at $12.06 million through 2025.

Estate taxes and inheritance taxes

That means estates with values of up to $12.06 million are not liable for federal estate taxes, though state estate taxes may still apply. Washington has an estate tax, but not all states have them. Some states have inheritance taxes, which are levied on the value of the inheritance by the heir. Inheritance taxes differ from estate taxes, which revolve around the estate’s value. The majority of states impose neither inheritance nor estate taxes.

Assets in trusts and other instruments

Depending on the structure of the person’s estate plan, some assets may pass directly to beneficiaries without going through the probate process. Assets held in trust, for example, do not go through probate. Life insurance proceeds are not estate assets and pass directly to the beneficiary or beneficiaries named in the policy. Increased awareness of the operation of these different legal mechanisms can minimize tax obligations and avoid unnecessary legal proceedings.