There are a lot of things on a Maryland resident’s mind immediately after a loved one passes. Unfortunately, one of the most pressing concerns might be how to pay for things like the funeral expenses and estate taxes.
An estate tax is applied by federal and state governments upon the transfer of estates from the deceased’s name into the beneficiary’s name. Some wills and trusts take the estate tax into consideration, but other times, it can come as a total surprise to the surviving family members.
How the estate tax gets paid
A well thought-out estate plan will address estate tax from the very beginning. This can come in the form of life insurance policies, trusts or even a specific note in the will.
Normally, what happens is that a specific asset is used to help cover the cost of the estate tax. If money wasn’t set aside to help cover the costs, then the estate tax will be paid using assets of the previously deceased.
These assets would most commonly be things like bank accounts, inheritances and even property. Tangible personal property, such as jewelry or a specific item, won’t be used to pay the estate tax until all other assets have been used first.
How to prepare for estate taxes
Using a will and trust to help narrow down what assets should be used to pay estate taxes for the whole of the estate will help limit the amount that beneficiaries have to pay. For example, with a revocable living trust, a person can say that the estate tax should be taken out of their trust assets.
Unless a trust has been set up to address the estate tax, then the beneficiaries are most often the ones who are responsible for paying it. That’s why it’s important to prepare with an estate plan.