Even if you’re not wealthy, an estate plan can help ensure that your assets efficiently pass on to those whom you want to receive them. But if you have significant assets, estate taxes can approach 40%.
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.
So, wouldn’t you rather see these items stay in your family instead of being handed over to Uncle Sam?
Use these tips to help reduce your estate tax burden:
First - Give the money to your children or grandchildren while you’re still alive. In 2022, the annual gift exclusion is $16,000. And if you’re married, you and your spouse can each give a total of $32,000 per child or grandchild.
Second - Be charitable. Charitable gifts 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. And not surprisingly, charities are well versed in gift giving and taxes.
Third - Set up an irrevocable life insurance trust. These trusts permit the transfer of assets up to the value of the life insurance premium. But the real benefit comes from the value of the policy. Life insurance proceeds are normally free from taxes.
Fourth - Transfer assets to your spouse. Gifts given during your lifetime or left to your spouse in your will are generally not subject to taxes.
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.
Fifth - Move. Not all states collect an estate or inheritance tax. So, 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.
And Sixth - Set up a family partnership or family LLC. These business entities may be another way to potentially reduce estate taxes.
And Seventh - Enjoy it. Any money spent won’t be part of your estate come tax-time. If you’ve focused on saving money in the past, maybe it’s time to enjoy some of your money while you can.
If you don’t have an estate plan, it’s never too soon to start. Setting up an estate plan can be very simple or very complex depending on your specific situation. So it’s important to consult with an experienced estate planning attorney before making any decisions.
Your heirs will thank you.
The information, views, and opinions provided or expressed by authors or publishers on WealthCare Blogs are for general education and entertainment purposes only. No advice or recommendations are provided. You should consult with an appropriately licensed wealthcare professional or do your own due diligence before making any wealthcare decisions.
