When someone dies, their assets are eventually transferred to beneficiaries. Those beneficiaries are typically listed in the decedent’s will, but sometimes they are specifically titled on an account. For certain assets, titling not only eases the pain of distributing assets, but also can help save on income taxes.
If you are an owner of an Individual Retirement Account (IRA), and do not have a beneficiary listed on the account, then your estate might pay the income tax on the distribution received postmortem. The tax brackets for an estate escalate very quickly compared to an individual – the maximum tax rate of 37% starts at taxable income of $13,450. If your beneficiary listed has predeceased you, the estate defaults as your beneficiary. This same rule applies to several other retirement plans such as 401(k), SEP IRA, and Solo 401(k).
If you title a securities account as “Transfer on Death” (TOD) or “Joint Tenancy With Right of Survivorship” (JTWROS), those assets can bypass the estate and go straight to the beneficiary. This saves the headache of transferring assets to an estate and possibly incurring income tax at the estate level.
Minimizing taxes when a loved one passes doesn’t have to have a daunting task when you have qualified advisors to assist you. Should you have any questions or concerns, please do not hesitate to contact one of our trusted advisors.
