When someone passes away, it’s unfortunately common for their estate to include some messy tax problems. Unless the individual or their family is on the ball and has been taking proper care of their taxes, they might be leaving behind quite a headache.
There are a few common scenarios where family members are left to deal with tax chaos after their loved one has passed away. Most of the time, the issue is a result of a lack of tax knowledge and can be completely avoided. Some of these tax problems exist due to:
- Unpaid taxes– If someone has experienced a long illness before their death, they may have been neglecting their taxes for multiple years. The estate’s executor will be responsible for completing the required forms and making sure that the deceased’s taxes are up-to-date.
- Hidden funds or assets– While it sounds like a pleasant surprise to discover that a relative had an overseas bank account you didn’t know about, you might be less than enthused to learn that they had also been neglecting to share that information with the IRS or CRA and they owe taxes on that money.
No one enjoys talking with loved ones about a time when they are no longer around, but making sure that their (and your) taxes are in order can make a considerable difference in the future.
The first step is to ensure that you and your loved ones have an accountant you trust to help you navigate your current tax situation. Your accountant should also know about your plans in case of death. He/she will be able to give you information about the taxes your loved ones will have to pay on their inheritance and will help you to understand exactly what you’re leaving behind.
The Chicago Tribune recently posted about potential tax problems with an inheritance and looked to Douglas Rothermich, vice president of wealth planning strategies at TIIAA-CRF for his perspective. “Most families don’t want to let assets blow up their kids financially or create a wedge within the family,” he said. “It’s really important that older people planning their affairs think it through ahead of time so their loved ones don’t inherit a tax mess.”