Navigating the Complex World of Death Duty and Inheritance Tax

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The world of inheritance tax has come into the spotlight in recent months. According to the Wall Street Journal, President Biden is preparing to roll out a new series of inheritance and death tax measures that will have an impact even on modest estates – despite a stated aim of putting pressure on the ultra-wealthy. As a result, it’s more important than ever to establish exactly what will happen to your estate after you’ve passed. A good place to start is with exemptions.

Notable exemptions

The most important exemption concerns spouses. In most states, spouses are exempt from paying inheritance tax according to Investopedia, and in some states, that protection is extended to domestic partners – for instance in New Jersey. Another notable exemption concerns veterans. Several states provide full exemption for survivors of veterans who died during active service, though some aren’t quite caught up yet. This is a matter of federal law, so military families should consider petitioning for legal assistance if death duty or inheritance tax is demanded following the death in service of their relative. There are other exemptions but they largely concern state-to-state law – checking within your local area is crucial, therefore, to ensure that you retain as much of the estate as possible, or so you can prepare your estate properly ahead of time.

Finding documentation

One big problem associated with death duty and inheritance tax is documentation. As CNBC highlights, the changes being pushed forward by the Biden administration are predicted to cause a bureaucratic storm. Having the exact paperwork and audit trail to evidence the nature and size of an estate is essential, and that’s something to bear in mind when preparing your estate, and for families navigating it in the future. Keep documents in order, keep the estate organized, and have that information in an easily accessible place for legal professionals conducting the estate.

Valuing assets

Under the new death duty plan, assets won’t be subject to tax if they haven’t yet been sold. This, according to the New Republic, is a good thing for most estates. What this means is that assets can be held for longer, and value allowed to appreciate, before selling; and that means avoiding tax, at least in the short term. It also allows certain individuals to avoid paying capital gains tax at all – on most estates, in fact, with the stated estate size that would be liable under the new rules sitting at $13.7 million. As a result, it’s important to appraise assets and really drill down into the size and monetary value of the estate. 

Inheritance tax, or death duty, can be difficult to consider at the best of times. With new laws on the way in, there’s another level of complexity to consider. The good news is that most families can stand to benefit – but a bit of diligent work is required first in order to get everything in order.

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For many years, Jackie worked in the finance sector and after a short sabbatical, she decided to become a freelance writer. She now writes on money matters, news, and current affairs. Away from work, she volunteers for mental health charities and, of course, spends as much time as possible with her first joy which is her family - and a menagerie of pets.