While most commodities promise you of a lifetime use, real estate properties are among the few exceptions. They could even stay with you or your family for several lifetime– generations that is. While the word inheritance is a music to the ear, but the process it entails are sometimes deafening.
Wherever you are, there are certain laws and processes regarding inheritance and in Baltimore, and the Maryland state as a whole, the rules are not far from the norms.
The Hows and Whats
If someone you love has recently died, and you’ve been named as a beneficiary in a Will or a trust, or if you are an heir of someone who died without a Will or a trust, or if you’ve been named as an executor of a Will or trustee of a living trust, here are three things to keep in mind before you get started:
1. Many estates can avoid probate altogether, either because they’re small enough to fall under a state’s small estates limit, because the assets were held in a living trust, or because the assets will go to named beneficiaries because they are held as joint tenancy accounts, or in retirement or life insurance.
2. You have to pay creditors and taxes before you can inherit assets. You always have to pay taxes before any other creditors can get paid. Debts that are secured by property, like mortgages, are called secured debts, because if someone doesn’t pay the loan, the lender can take the property. If you inherit a house, you also inherit the mortgage. Unsecured debts, like credit cards, don’t work that way — as a beneficiary you are not responsible for that debt, but the estate needs to pay all known creditors before distributing property to beneficiaries and heirs. Otherwise, a creditor can come calling to get paid back from estate assets, even after they’ve been distributed.
3. Most estates do not need to file an estate tax return. Unless an estate is worth more than $5 million dollars (plus an additional amount indexed to inflation each year, currently $5,450,000, it will not need to file an estate tax return.
What Taxes Need to Be Filed After Someone Dies?
The person who files the return is called the Personal Representative. If there’s a probate, that’s the executor. If there’s no official executor, the person who has taken responsibility for distributing the person’s property will be in charge of paying the taxes. If there’s a trust, and that’s where the assets are, this is the Trustee. Basically, the IRS will deal with the person responsible for distributing the decedent’s property, however that’s going to happen.
There are three main federal tax returns that you’ll need to consider filing in the year after someone has died, but it’s unusual to file all three. In addition, you’ll have to file an individual state income tax return for the decedent, and, in some states, a state estate or trust income tax return, or a state inheritance or estate tax return.
Taxes are to be paid with the decedent’s money. Heirs and beneficiaries are not responsible for paying the deceased person’s taxes (except for the surviving spouse, who is responsible for those taxes). Taxes also get paid first from an estate or trust, so no one else is entitled to receive anything unless those taxes have been paid. The Personal Representative can be held personally liable for the tax bill, up to the amount that’s been distributed to other creditors or beneficiaries! So, take your time and don’t distribute anything until you’re sure that there’s enough left in the estate to cover the expected taxes due. Full details.
These taxes can be time sensitive and complex. We recommend that you contact a tax professional to ensure that everything is filed correctly. If you were left a home or other real estate in the will then there are ways to sell your inherited property.
Inheritance and Estate Taxes
Maryland residents are potentially subject to both an inheritance tax and an estate tax. Maryland’s estate tax is levied on estates of more than $2 million. This exemption amount is going up each year until 2019, when it will match the federal estate tax exemption, currently $5,450,000. The estate tax falls on the estate of the person who died; the beneficiaries or heirs inherit what’s left.
Maryland also levies an inheritance tax on people who inherit property in that state.
These state-specific estate and inheritance taxes are in addition to the federal estate tax, and that tax also falls on the estate of the person who died, not on the people who inherit that property. There is an exemption of $5 million, which is indexed to inflation and is currently $5,450,000, and only people who die with an estate larger than that exemption will have to pay estate tax. It is estimated that only the richest .14% of Americans will be subject to the estate tax, or only two out of every 1,000 people who die.
If someone dies in Maryland with less than the federal exemption amount (currently $5,450,000), their estate doesn’t owe any federal estate tax, and if someone dies in Maryland with an estate worth less than the state exemption amount (currently $2 million) there is no Maryland estate tax, either, though there may be inheritance tax due.
The Maryland Comptroller provides state tax forms and instructions. The Maryland estate tax return is due nine months after the death unless the executor requests and receives an extension. If tax is due, it must be paid nine months after the death, whether or not an extension to file is granted, unless the state also authorizes an alternative payment schedule, where payments are temporarily deferred or paid in installments.
All articles are sourced from Legal Consumer.
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