Even though Georgia doesn’t have an estate tax and the current Applicable Exclusion Amount for the Federal estate tax is quite high ($12.06 million in 2022), many people mistakenly believe that they only need to think about taxes if they have a large estate.
While the Federal government does not impose taxes until an estate exceeds the Applicable Exclusion Amount, it’s still important that your will or trust includes a “tax apportionment clause” that specifies who among your beneficiaries will ultimately bear the burden of any taxes that may apply in the event the law changes and your estate becomes subject to the estate tax, or you move to a state or locality that has an estate tax.
It’s even more important, however, if you have a large estate that will likely be subject to an estate tax.
For example, a tax apportionment clause can designate that only those assets passing under the Will or Trust are to be used to pay any taxes owed. If that’s the case, a beneficiary who receives assets through another means (e.g. a beneficiary designation for your IRA) would not bear the burden of such taxes.
It may be unfair, however, to exempt such a beneficiary, and so a Will or Trust can also require that any taxes owed allocated among ALL the beneficiaries, including those who received assets outside of the Will or Trust through a beneficiary designation.
Yet another approach is to require taxes to be paid out of the “residuary” of the estate (i.e. what’s left after any specific distributions are made). That can also be a problem, however, if there aren’t enough funds in the residuary to pay such taxes.
Without careful consideration regarding the source of payment, disastrous consequences result.
It’s important to understand how taxes can impact your estate plan, so call us today at (404) 465-3426 to schedule a consultation.
And if you want to learn more about tax apportionment, this blog post by the American Academy of Estate Planning attorneys contains examples of how this important issue can play out!