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Avoiding huge taxes when you significant other dies

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PapaGeek
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Avoiding huge taxes when you significant other dies  Reply with quote  

Iím 68 and my GF is 59. Iím retired and she is thinking of what age to retire.

What we are concerned about is how to structure our retirement nest eggs not just for retirement income, but to insure that things are available to the other after the first of us passes on. Everything is in joint name except our IRAís, and from the look of it, the tax hits are huge if we merely leave them to the other person.

In most states there is a huge tax if you do not leave you inheritance to a blood relative or spouse. That on top of the sudden withdraw of all IRA contributions can be devastating to the second person.

One item we have thought about is forming a trust for our individual children, leave the money in IRA funds in that trust and make the second person trustee of the trust.

Does anyone have any suggestions on the best way to do this so the government doesnít take nearly half of half of our retirement next egg when the first person dies.
Post Thu Jun 11, 2015 10:28 pm
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oldguy
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quote:
so the government doesnít take nearly half of half of our retirement next egg when the first person dies.


The federal estate tax was changed a few years ago to exclude your estate up to $5.8 million for each person. So unless you guys are really rich, there will be no tax there.

As for the federal income tax on the IRAs -yes, that tax hasn't been paid yet, you excluded it when you stored the money in IRAs. So that will be due whether it's in a trust or not - it's just a matter of when. But it won't be 50%, maybe half of that.

I don't know about your state - but most states that have an estate tax have a small one, 4% or 5%. Most of the western states have zero.
Post Thu Jun 11, 2015 11:22 pm
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dozulu
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Another thing that helps...

The basis value of your jointly owned real estate is reset to the current market value at the time of death. This means that capital gains tax is eliminated if the remaining spouse sells the property.

In my case, husband and I owned (everything) vacation property as well as primary home. As both properties has gone up in value over our ownership time, I would not have to worry about capital gains on the sale as the basis reset to the fair market value at the time of my husbands death.

It is one less thing to worry about after a tragedy.

Hope this helps!
Post Mon Nov 23, 2015 12:17 am
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