Planning Ahead

questions & answers

Question: Will my beneficiaries’ inheritance be taxed?

Answer:

Not in Arizona. Some other states have an inheritance tax. An inheritance tax is a tax on the beneficiary receiving the asset.
There is an estate tax in Arizona – a tax on you giving assets to people at your death. Right now, Arizona is tied to the federal laws regarding the estate tax. There is also a federal estate tax. There is an unlimited marital deduction (if applicable) and charitable deduction (if applicable).

If you and/or your spouse are not US citizens, please see an estate planning attorney regarding the estate tax rules in your situation.

If your assets are over $2,000,000 in 2006 and you die this year, then your Personal Representative/Trustee will need to file an estate tax return.

If you give more than $1,000,000 away during your lifetime, you will owe gift tax. At this time, you can give $12,000 per person per year to any number of individuals for any reason free of gift tax. If a gift to any one person is over $12,000 then you will need to file a gift tax return and use part of your $1,000,000 exemption from gift tax. Gifts above $12,000 can be made directly to an educational or medical institution and not be subject to gift tax.

Another tax to watch out for is the generation skipping transfer tax. You may want to plan to use the exemption from this tax to leave assets to your children that are not includable in their estates at their deaths.