Georgia residents who may be responsible for managing their parents’ assets during their later years and after their death may want to know about the different ways taxes on the assets can be minimized. There are multiple ways to cut tax debts or defer the tax consequences.
While they are still alive, parents may be able to claim a tax deduction for selling any stocks that have losses. Because of the stepped-up basis rule, which states the value of an asset will be its value on the date of death of the owner, if a parent dies without selling the stock, any loss cannot be deducted.
However, the stepped-up basis rule is beneficial if a parent maintains ownership of all of his or her stocks that have gains or have increased in value. No income tax will be assessed on any such appreciation upon a subsequent sale.
Parents can also manipulate their IRAs to reduce tax liability. If IRA assets are sold while a parent is still alive, taxes will be assessed at his or her individual tax rate. Beneficiaries will be able to either receive a lump sum distribution or allow the IRA to grow in value as the taxes are deferred. If their parents qualify, individuals may also claim their parents as dependents to save money and reduce taxes. The requirements for claiming others as dependents include providing over half of their financial support.
This type of pre-death financial planning can reduce future income taxes on beneficiaries. An estate planning attorney could suggest other strategies that could be appropriate for a client’s particular set of circumstances.