Do I need to pay tax on my inheritance in Arizona?
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Do I need to pay tax on inheritance in Arizona? As a premier estate planning law firm in Phoenix, Chandler, and Mesa, this is a question we often hear at Phelps Law. Our estate plans are custom designed to protect your assets and minimize tax exposure for you and your heirs. Concerning inheritance taxes, there are two sets of laws at play: federal and state.
Federal tax exemption
The federal inheritance tax exemption changes from time to time. It is currently set at $11,400,000. This means that on the federal level, if your estate is valued at less than $11,400,000 when you die, then your beneficiaries will not have to pay any federal tax on their inheritance.
Arizona estate tax
Since 2006, Arizona no longer levies an estate tax. But there are states that do impose a state-level estate tax. If you own property in those states, or have heirs who live in one of those states, your estate and their inheritance may be subject to taxation.
IRAs and other retirement accounts can create different tax issues. If you have a named beneficiary on these accounts, they can be subject to taxation. Phelps Law now offers a groundbreaking new solution: the IRA Inheritance Trust. It is a revocable trust that you name as the primary or secondary beneficiary of your retirement accounts. You still maintain control of it, and when you die, the trust can stretch out the minimum taxable distributions to your heirs. This preserves the value of the retirement account over a longer period of time.
Income from investments
If your estate includes income-producing investments, your heirs may need to pay a tax on the income earned by those investments during the administration of the estate. The same may be true for property that has increased in value from the time of your death until the settlement of the estate. Tax-sheltered annuities are also subject to income tax on the income earned while you held the annuity. These annuities are tax deferred, not tax free.
We hope this overview has been helpful in giving you a simple picture of issues concerning tax on inheritance in Arizona. For a more complete explanation and to find the best solution for your situation, come in for a consultation. At Phelps Law, your first consultation is free. Our attorneys are expertly informed on current tax law and we would be delighted to help you with all of your estate planning needs.