Jessica Pesce specializes in estate law and elder law. She has helped many people with their estate planning and tax planning since joining Ladimer Law in 2017. Jessica has been named a Rising Star by Super Lawyers three years running.
Do I Need to Think About Estate Tax Planning as a Single Person?
While married couples have different priorities than their single counterparts, one thing is certain: anyone – whether they have a family or not – needs to think about estate tax planning.
In fact, planning one’s own estate taxes as a single person might be more important than it is for a married couple. Why? As we’ve mentioned before, inheritance happens along bloodlines. Here, in Massachusetts, if you don’t have a spouse or a will, the Commonwealth will determine how to divvy up your assets. You probably don’t want to leave it up to the government to make those decisions.
Most of us work our entire adult lives to not only support ourselves, but our families, too. But what about single people? How might they approach estate planning differently? And what sorts of tax implications should single people be particularly thoughtful about?
Estate tax planning is important for singles as well as married couples.
The basics
First, understand what an estate is: it’s everything you own. That can include “tangible assets,” like a home and/or the land it occupies; vehicles like cars or motorcycles; valuable items like antiques; jewelry and more. “Intangible assets” include retirement accounts like a 401k or an IRA; checking and savings accounts; and stocks, bonds or mutual funds, for example.
Tax exclusions make a huge difference
Single individuals whose estate is worth more than $11.4 million should make a plan to reduce federal taxes when they die. State limits are much lower, so it is important to plan for that, as well.
The Wall Street Journal reports that, “the annual gift-tax exclusion is $15,000 per donor, per recipient. Thus a giver can give anyone else—such as a relative, friend or even a stranger—up to $15,000 in assets a year, free of federal gift taxes.”
Luckily, there’s a very high limit on these gifts when it comes to eliminating estate taxes. You can gift up to a total of $11.7 million to family, friends and loved ones without being taxed federally.
Estates worth less than $11.4 million will not be taxed by the federal government when a single person dies. But it’s still important to create a will to ensure that your assets are distributed to your chosen beneficiaries. Even without children, an individual can name a partner, relatives or create an irrevocable life insurance trust.
Trust us. (A) trust is important.
As we’ve mentioned, “the purpose of Irrevocable Life Insurance Trusts is to protect the death benefit of a life insurance policy from being counted toward your estate’s net worth when you pass away.”
An irrevocable life insurance trust will also ensure there’s money available to your beneficiaries even if they aren’t old enough to manage the funds on their own; a trustee (or trustees) you name will be responsible for managing the trust.
“The insurance benefits can be the inheritance, or the life insurance can be used to pay estate taxes, debt, and other expenses,” according to RetirementWatch.com.
Massachusetts estate taxes
In Massachusetts, an individual’s estate will not be taxed if it’s less than $1 million. However, estates valued at more than $1 million are subject to tax. In Massachusetts, that rate can be as high as 16 percent. Unfortunately though, it’s not that simple. There might be federal estate taxes to pay, though those cases are rare.
Calculating estate taxes is incredibly complex, which is why it’s important to consult a professional, like an attorney who practices estate tax law.
An estate tax attorney understands the intricacies of the estate tax laws as well as ways to avoid certain assets from being taxed. For example, an estate tax attorney can offer guidance and support for identifying how much of your assets to give to a loved one or a charitable organization to help lower the total amount of your taxable assets.
The bottom line?
You work hard for your money. Enjoy it. Spend it on experiences, and enjoy life. But be sure to plan for the end while you’re still able to. Don’t leave your estate tax planning until the last minute. That might just be too late.
If you would like to learn more about estate tax planning, call our office at (508) 532-8689 to schedule an appointment.