Consult Professionals Before Filling Out Estate Tax Forms

The passing of a loved one can be a devastating and difficult time for families, and dealing with the decedent's estate can be a complicated process for those unfamiliar with tax laws. Those in the legal and tax industries alike recommend that individuals consult with professionals prior to submitting any documents or forms to ensure that they are in compliance with current laws, but understanding the basics may provide some clarification and make the process more simple.

When a family member or loved one leaves assets to another individual, they are typically regarded as part of the deceased's estate and, therefore, taxable. Estate items that may be subject to taxation include life insurance policies, pension proceeds, stocks, bonds, bank accounts, real estate, annuities and business interests. Currently, an individual who leaves an estate worth up to $3.5 million to heirs can do so tax-free, but this exemption may change after 2010.

Additionally, the way in which the assets were left to an individual - by will, trust or beneficiary designation - will not affect whether or not they are taxable. Though most estate items are taxable, certain deductions may exist. Assets passed directly to the decedent's spouse may qualify for a marital deduction. Items that are passed on to charities may also be deductible. Although certain conditions may apply, mortgages, debt and administrative costs associated with the estate may also be deductible.

Once the beneficiary works with a tax preparer to determine what portions of the estate are taxable, they may also need to provide additional pieces of documentation to the government. Generally, copies of the decedent's death certificate, will, trusts, property or art appraisals, and other relevant information are requested to make the process easier.

The rules regarding estate taxes also include many other provisions and rules regarding gifts and property that may have been previously left to the deceased from others during their lives. Because of the different scenarios governing each individual case and estate amount, it may be best to consult with a licensed professional to determine the tax implications that will apply and all of the documentation that will be required.

Similar to a consumer's personal income taxes, it is always best to keep detailed records, forms and documents associated with the death in a centralized location so that they can make sure they have all the required data they need during filing season.

Are online wills the way to go?
Americans are becoming a more technology-dependent society, opting to carry out most social and financial interactions online rather than in person. As online-based transactions move to the forefront, many consumers are choosing the do-it-yourself option to invest their money, conduct their own banking and draft up important documents, rather than relying on a professional. The latest independent move Americans are making is drafting their own wills.

A number of online will sites have popped up recently, giving consumers the option to set up their own will with the online guidance of estate planning attorneys. However, a few problems may arise and it's important they are addressed before taking the online route. An individual's will is a significant document that passes down money, trusts, investments, property and assets to beneficiaries and heirs. Because of the financial and sentimental weight these documents carry, they can lead to legal battles among family members and beneficiaries, making it imperative to fill them out correctly and make sure they are valid.

Consumers who rely on online wills are generally those with simple assets and designations, according to Bankrate.com. Financial professionals discourage some Americans from drafting their wills online, namely those who hold significant assets, run a business, have been married more than once, are raising children who are minors or who expect their will may be contested by their relatives.

'A married or unmarried individual with an insignificant level of assets (that is, below the threshold before federal and/or state taxes kick in), who knows where his or her assets will go, knows there will be no conflict among the beneficiaries and who has a clear choice of executor will probably get a rather satisfactory online will,' Eaton & Van Winkle partner Jeffrey Asher told Bankrate.

The drawback of online wills is they do not allow consumers to sit down with professionals, such as their tax preparer, to discuss the financial and tax implications of their documents. This can lead to mistakes or discrepancies on a consumer's will. Additionally, estate laws and a number of tax benefits remain in limbo until the government decides on a course of action, making estate planning more complicated. Speaking with a licensed professional can clear up some of the confusion and help individuals make difficult decisions.