How would someone go about bequeathing an amount of money to an heir, so that he receives that amount “after taxes”? That might not be too difficult if the heir has no other income. But if he does, I think a tax attorney would have to control the payment, in essence doing the heir’s taxes . . . taking into account his other income, adding a hypothetical inheritance, then making adjustments. Is there an easy way to do this?
Answer: ask an attorney.
Hypothesis: attorney writes in some language like:
“To X I leave $100k plus an additional amount, as reasonably determined by the executor, to cover any applicable inheritance taxes.”
My family does it through a combination of trusts and LLC’s (Limited Liability Corporations). Trusts can be expensive and complicated to set up. LLC’s can be easier but still require some expertise. The key point is that taxes can be paid as the money goes into them so there is no tax left to pay when the recipient withdraws it. The specific choice of how to do this depends on many things including how much money is involved. You need a lawyer and other professionals to go this route however.
Depends on where everyone lives. On the federal level and most states, there is no “inheritance” tax, but rather an estate tax. The taxes are paid out of the estate before any money is distributed to the heirs. Thus if you specified that relative x gets $100K, they will get that $100K as long as there is enough money left in the estate after the taxes are paid. X doesn’t pay any taxes on the money they receive at that point.
As far as states with inheritance taxes go, I believe in most cases the taxes are levied directly on the inheritance itself rather than the inheritance being added to the recipients income and paying regular income tax on the total. In that case, it is again rather easy to figure out the gross amount that needs to be paid to result in a net inheritance for the recipient.
What Baracus said. In addition, to correct a misapprehension in the OP: Inheritances are not considered income and, at least in the United States, are not subject to income tax, but rather have their own tax realm (estate and inheritance taxes), so there is no need to take account of the heir’s other income.
Talk to an estate attorney. There’s no other way around it. You can probably find out what you need to do in the very first (usually the “free consultation” meeting.)
Yes, set up a trust. I’m not an attorney but I wrk with several on setting up trusts and the investments inside them. One can do almost anything inside a trust. And the tax benefits aren’t to be sneered at either.