Even if you’re not wealthy, an estate plan can ensure that your assets pass on to those whom you want to receive them.
Estate taxes are imposed on the heir of an estate and include any real estate, stock, cash, or other assets transferred to heirs at the time of death. There are both federal estate taxes and, in some states, state estate taxes.
Wouldn’t you rather see these items stay in your family instead of being eaten by Uncle Sam?
Laws can vary from state to state, so be sure to find the details that apply to your situation.
Use these tips to reduce your estate tax burden:
- Give the money to your children while you’re still alive. You can give up to $14,000 per year to any of your children or grandchildren. If you’re married, you and your spouse can each give a total of $28,000 per child each year. This can add up.
- Be charitable. Charitable gifts and lifetime transfers are a way to reduce your estate taxes and get your money to the organizations that mean the most to you.
- There are several ways to gift money and assets to charitable groups. Not surprisingly, charities are well versed in gift giving and taxes. Their help is also free!
- Set up a trust. An irrevocable life insurance trust permits the transfer of assets up to the value of the life insurance premium. The real benefit comes from the value of the policy. Life insurance proceeds are normally free from taxes. This is quite simple to set up, but a trust attorney can ensure that it’s done properly.
- Transfer assets to your spouse. Gifts given during your lifetime or left to your spouse in your will are not subject to income taxes, up to approximately $10 million.
- However, your spouse will eventually have to pay taxes upon their death. But this extra time can be put to good use to further reduce the tax liability.
- Enjoy it. Any money spent won’t be part of your estate come tax-time. If you’ve focused on saving in the past, maybe it’s time to enjoy some of your money.
- Not all states collect an estate or inheritance tax. Moving to a different state could save your estate a lot of money. A little over half the states don’t collect these taxes, and one of them may appeal to you. Do some calculations and see how much you would save if you moved.
- Set up a family partnership or family LLC. These business entities are another way to potentially reduce estate taxes.
Estate planning isn’t just about protecting your assets. It’s also about meeting your financial goals. If you don’t have an estate plan, it’s never too soon to start. An attorney is a great place to begin. Just be sure that they have expertise in estate planning. For example, most attorneys don’t have the slightest idea how to set up a trust.
If you have significant assets, estate taxes can approach 40% of the value of your estate. It only makes sense to reduce this burden as much as possible. Your heirs will thank you.