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What Are The Tax Considerations Associated With Terminal Illness And Death?

When the terminal illness of a family member is newly discovered, or in those cases where the death of a family member has just occurred, federal income tax liability certainly isn't a primary concern; indeed, it may seem utterly insignificant. Emotional upheaval is likely, and pressing matters must be considered first. Nevertheless, income taxes must be dealt with at some point. And in the case of the terminally ill, tax planning may be essential for several reasons. Sufficient cash must be on hand to subsidize increased medical bills, finances and retirement assets must be positioned in the most advantageous ways, and estate planning should be considered. In all of these instances, income tax planning can play a key role.

If the death of a family member has recently occurred, other tax issues become important. In particular, you'll need to learn the proper procedure for filing and signing the decedent's final income tax return, you'll need to review the applicable filing status rules, and you'll probably need to learn how to obtain and cash any refund check to which the deceased may have been entitled.

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What Should You Know About Income Tax Planning for The Terminally Ill?

Increased medical expenses and decreased ability to earn income often accompany terminal illness. As a result, you may be required to deplete or liquidate all or a portion of your investments, retirement accounts, or insurance vehicles. You need to know how best to increase your liquidity, and you need to understand the tax consequences when you access each of these classes of assets. Income tax planning for the terminally ill also often involves learning how to take advantage of medical deductions, charitable deductions, and gifting to loved ones. Along with income tax planning, you'll want to think about estate planning as well.

How Might The Death of A Family Member Impact Tax Return Responsibilities?

The death of one of your family members, particularly the death of your spouse, may create certain federal income tax tasks and responsibilities for you. In particular, you'll need to learn the proper procedure for filing and signing the decedent's final income tax return; you'll need to review the applicable filing status rules; and you'll probably need to learn how to obtain and cash any refund check to which the deceased may have been entitled.

What Should You Know About Income In Respect of a Decedent (IRD)?

Income in respect of a decedent (IRD) involves gross income that a decedent would have received had death not occurred, that is not properly includable on the decedent's final income tax return. Instead, the IRD is reported on the recipient's income tax return in the year received, or, if paid to the decedent's estate, the IRD is reported on the estate's income tax return. If you are filing a final income tax return for a deceased loved one, it is important for you to understand the concept of IRD.

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

 

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that focuses on transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

 

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.



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Tags: Financial Planning, Lump Sum, Pension, Retirement Planning