inheritance tax

Inheritance taxes are not the same as probate fees, which can also cost thousands of dollars. Settling an estate may also involve executor fees, court fees, recording fees and attorney fees. In many cases, inheritance taxes and fees must be paid as the estate is probated, meaning that the heirs will need to come up with the money just about immediately after a person's death. In many cases, the heirs either have to sell the assets they've inherited just to pay the taxes and fees or they have to borrow money to do so. Part of estate planning, therefore, is preparing for the taxes due upon one's death, and where one lives can have a significant impact on the amount of estate tax his or her heirs pay.

Many people attempt to reduce the size of their estate while they're still alive by giving away portions of their estate. This can be done without triggering estate taxes as long as the gifts are below the gift-tax exemption limit. Establishing a trust often reduces estate taxes because it allows a person to transfer legal title of his or her property to another person while he or she is still alive. It also gives the trustee (the person acting on behalf of the deceased person, sometimes called the decedent) the authority to distribute assets immediately to the beneficiaries based on the terms of the trust. No court is involved, so there are no probate fees and no public record of the value of the estate. Many financial advisors urge clients to have trusts, especially those who live in states where probate fees are especially high or if the client owns a home or real estate. Trusts are not for everyone, however, so it is important to seek proper financial advice.