Estate taxes in the USA are levied on valuations above $11.4 Million as per laws modified in 2019. This implies that most estates are not under estate tax purview. Estate planning is still an integral part of your financial planning endeavors. On the flip side, death taxes or inheritance taxes do apply. The assets that your legal heirs inherit are taxed on the basis of the valuation of the same. The beneficiary is liable to pay the tax. You can actually make provisions to pay this amount in your will itself.
The aim of creating a plan is to maximize the inheritance for your family. Your hard earned money needs to be kept insulated. You can actually save thousands in creating a favorable asset plan. Take all measures possible to create a plan that will help you secure the estate. Professional help will go a long way in this regard.
Spend Your Assets To Reduce Estate Planning Costs
Spending your assets is a good way to mitigate tax liability as the value of the property reduces. It is a good solution for people who have enough money to sustain lifelong. Another similar measure is to gift your assets to your beneficiaries while you are still alive. This step is irrevocable and you should be sure of your decision before you do so. You can gift up to $15000 to an individual beneficiary without attracting tax.
Foundational Estate Planning For Married Couples
Married couples can use Foundational estate planning to create tax efficiency. The ABC trusts and AB trusts help eliminate or reduce both the state and federal tax. The tax exemptions were deemed ‘portable’ within marriage laws. The living spouse can use the tax exemptions of the pre-deceased spouse. The ‘portability’ makes estate planning even more interesting. Getting married is good for your taxes too!
A family LLC or limited Liability Company is a good avenue to park your assets and save taxes. If you are married you can use the annual exclusion gift to your advantage too. The lifetime gift exclusion signifies that you can gift up to $152,000 in property or cash to your spouse who is not a citizen of the USA. The benefits are compounded when you give a gift to your spouse who is a US citizen. The SLAT or Spousal Lifetime Access Trusts can be used to save humongous amounts of tax too. You are not needed to pay any tax at all on your gift!
Beneficiaries Other Than Married Couples
You can gift your beneficiaries unlimited funds for healthcare and education. You will need to pay the institutions directly. The amount cannot be paid to the beneficiary. The tax rebates are applicable only when the payment is to the organization. You can stretch this plan to five years under the 529 savings plan. You can give only this benefit to a particular beneficiary at a time.
The Qualified Personal Residence Trust allows you to stay in your home for a fixed number of years. The home then passes on to the beneficiary at a lower value after adjustments for estate and gift tax. This is a good way to ensure that the property does not attract inheritance tax.
The other way to save massive amounts in inheritance tax is to create a Charitable Remainder Trust. The trust saves you taxes when you fund it as an Income tax deduction. The trust provides your estate a tax rebate as charitable tax deduction after your demise.
Moving To A New State
It sounds extreme, but it is better than paying thousands of dollars as taxes after your death. You can safeguard your family from paying humongous amounts as inheritance tax. The states which have high inheritance taxes are New York, Columbia, Maine, Connecticut, Hawaii, Washington, Delaware, Kentucky Illinois, Iowa, Rhode Island Tennessee, and Vermont. If you are living in these states you might want to shift to other states.
The death taxes can take a huge toll on the legacy of your heirs. You should actively look into getting your estate planning done on a professional level.
Once you have created a good estate plan, you must take care that you keep your property safe. The professional financial planner can allocate your assets to your beneficiaries. They can also save you tax at the time of creating the plan and even after death. Review your strategy every year or so to keep the plan relevant. It is important that your family enjoys the fruits of your labour.