Death Taxes – What Taxes Will be Due at Your Death

You may be concerned about taxes that will be due at your death.  Before you worry too much about taxes, you should understand the various types of tax that can apply, and whether they will apply to you.

Federal Estate Tax.  There is a federal estate tax that applies at death.  However, there is an estate tax exemption available.  The exemption is $13,610,000 as of 2024. You may use some of this amount with lifetime gifting.   Otherwise, this full amount is available to your estate at your death, which means that if your estate is under this amount then no estate tax will be due.  If your estate is over this amount, but if all or some of your assets pass to a spouse or charities, then estate tax may still be avoided.   For most people, their assets are under $13,610,000, and therefore federal estate tax is not a concern.  However, this amount is scheduled to drop to about $7,000,000 on January 1, 2026.

State Estate Tax.  Some states impose estate tax or inheritance tax. Colorado is not currently one of those states.   If you reside in another state or own property in another state, then estate tax or inheritance tax could be due in that state at your death.

Capital Gains Tax.  At your death, assets you own with a tax basis such as real property and stocks receive a new basis equivalent to the fair market value of the assets at the date of your death.   Typically, assets increase in value over time, which means that the basis of the asset at your death is more than your basis immediately prior to death, resulting in a “step up” in basis.   This is beneficial because income tax is due on gain, and if there is higher basis, there is less (or no) gain when the asset is sold.  Keep in mind that step-up in basis is more complex if you own a business entity, such as a partnership, LLC or corporation.

Income Tax.  Assets that carry with them an income tax obligation during your life continue to carry that obligation following your death.  For example, if you have a traditional IRA or 401(k) plan, then income tax will be due as you withdraw from that account.   The same is true if your IRA or 401(k) passes to someone else at your death and then they must withdraw from the account.

In sum, there can be tax implications following your death.  In many cases, the tax burden is not as hefty as you might have feared. However, it is worthwhile to understand the taxes that will apply in your particular circumstance and take advantage of any opportunities to eliminate or minimize the tax.   The estate planning attorneys at Lyons Gaddis, P.C. are happy to advise you.

This publication is designed to provide general information. It does not constitute legal or financial advice.