Archive for February, 2009

Estate taxes are due nine months from the date of death. Under very special circumstances, you can get an extension for twelve months, but it’s not as easy as you might hope, and you also have to pay interest on the sums due. When you have acquired enough money to have to pay estate tax, the government thinks you will be smart enough to have planned for the day you’ll owe the money and just assumes, often wrongly, that you’ll have it on hand. This can be a real problem if you didn’t plan as well as you thought you had, or had not planned at all, because you and your parents (or whoever you’ll be inheriting money or property from) have never discussed it.
If you’re left an inheritance of assets such as real estate that might not be so easy to cash in fast, or assets that you didn’t want to cash in, and you have no liquid cash of your own, you could be in a very precarious situation. Advance knowledge of what will happen when the time comes gives you time to prepare, either by getting a life insurance policy that would help pay the death benefits or by liquidating assets sooner rather than later.
Sherry’s family’s situation is different from most. In their situation the main asset they will be inheriting is a business. Under the Internal Revenue Code Section 6166, they might be allowed to pay off their estate tax over a nine-year period of time, with interest. Even so, they’ll have to come up with almost $20,000 extra a year, which will no doubt put a crimp in the balance sheet.
For most people, it would be worse. Most people owe estate taxes nine months from the date of death, and that’s that. If you can’t pay your estate tax, interest will be charged. Currently that rate is three percentage points higher than the current rates on certain short-term Treasury obligations. If you inherit a closely held business, the rate is a flat 4 percent. It’s great to get an inheritance—unless you’re not prepared for it.