There are two inevitabilities in life: death and taxes. After you die there are a variety of expenses that will have to be taken care of by your estate. These include funeral expenses, debts owed at death, and expenses to administer the estate. The good news is that these expenses are deductible on your estate tax return. Furthermore, if you do not owe estate tax, many of these expenses can be taken as income tax deductions.
Four types of expenses that qualify for tax deductions:
- Funeral expenses. (Funeral service, cemetery, cremation, etc.)
- Administration expenses. (Accounting fees, attorney fees, executory fees, etc.)
- Claims. (Utility bills, credit card balances, financial obligations, etc.)
- Mortgages. (Real estate debt, home equity loans, etc.)
There are two main reasons that estate tax may not be due in the first place. First, if you are married and leave your estate to a surviving spouse, there is an unlimited marital deduction. Second, there is a federal estate tax exemption. If the total value of your estate is below the exemption then you will not owe estate tax.
Choose the executors of your will carefully to ensure that your family will be able to take advantage of tax savings opportunities. Also, you should include language in your estate planning documents that grants your executors the flexibility to take advantage of these opportunities.