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10 Death Tax Myths

        Money | Taxes

5
My heirs can worry about these taxes; I can't do anything about them
Leaving tax problems for your heirs is not only inconsiderate, but it may also be costly.
Leaving tax problems for your heirs is not only inconsiderate, but it may also be costly.
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The very nature of estate and inheritance taxes -- that they're paid out of your estate, or by your heirs, after your death -- may make them seem like something completely out of your control. However, leaving the problem for your heirs to work out is not only inconsiderate; it can also add unnecessary costs to your material and financial legacy. It pays to make moves during your lifetime that can protect your estate for your heirs.

One target of inheritance and estate taxes is the income you'd earn if you were still living. This is often in the form of investments and retirement accounts, and they're taxable in much the same way as they'd be if you were alive. If your spouse is living, one very effective way to minimize this tax is to plan for a spousal transfer of assets. Not only does this help you provide for your spouse's income after you die, but it also means inheritance taxes can be postponed until after your spouse's death [source: Mayerhoff].

Likewise, giving gifts of assets during your lifetime can help minimize costs to your heirs if those gifts would be more heavily taxed after your death. Regardless of your state, type of asset or financial situation, passing on your assets during your lifetime requires forethought and planning to ensure you divest the right assets to the right recipients at the right time to minimize tax burden [source: Mayerhoff].