When estate planning, not all assets are taxed the same

The accumulation of assets can have a more significant effect on the futures of loved ones and other parties than some Pennsylvania residents may initially realize. However, when they begin estate planning, they may start to see just how their assets  and the different types of assets  could be used by others. Often, individuals have a difficult time deciding who gets what, and even if a person thinks he or she is being equal, the outcomes can be surprising in some cases. 

It is important to note that not all assets are equal. Even if two different accounts have the same amount of money in them, the type of account will have a significant effect on what the beneficiary actually inherits. For example, leaving funds from a bank account and from a traditional IRA have vastly different tax implications in most cases. 

If a person wants to leave funds to his or her children and thinks that leaving the same amount to each child by using a bank account for one and a traditional IRA for the other will be an equal distribution, the following tax information may be useful: 

  • Leaving cash to an heir from a bank account will not result in federal taxes because of a tax exemption on cash inheritances. 
  • Leaving cash to an heir that is kept in a traditional IRA would result in the heir having to pay income tax. 
  • Even if the amounts in the bank account and IRA are the same, the heir receiving the funds from the IRA would receive less due to taxation. 

These matters are important to consider when estate planning. It is unlikely that a Pennsylvania parent wants to put their children in a situation where they fight over assets, but not understanding the tax implications of certain assets could cause contention in the future. As a result, individuals who are interested in leaving their heirs with inheritances that are as equal as possible may want to ensure they have the right information when planning. 


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