If you want to leave your assets to your loved ones after you’ve passed, you certainly aren’t alone. What most people don’t realize, however, is the significant dent that estate taxes can put in the funds you leave behind.
We’ve compiled some of the top strategies you can follow to ensure the best future for your finances, even when you’re no longer here.
Estate Tax Planning To-Dos
Name Key Individuals
If you’ve put together a will, you’ve already named an executor, but you’ll still need people there to help you fulfill your desires while you’re still living and after you’ve passed. This includes key players such as your durable power of attorney, your healthcare power of attorney, and child guardians.
Select beneficiaries
If your holdings are kept in a retirement account, such as a 401(k) plan or IRA, the financial firm will need to know where to direct your funds after you’ve passed. Your named beneficiary trumps anyone or anything in your will, so it’s critical to select yours carefully and review your selections on a regular basis.
Know These Tax Types
Estate tax: If the value of your estate, including cash, securities, and properties, surpasses the federal estate tax exemption limit, your estate could be subject to the federal estate tax (sometimes referred to as the “death tax”). 2021’s exemption amount was $11.7 million per person and has increased to $12.06 million in 2022.
Gift tax: If you choose to give away assets during your lifetime, you may be subject to the gift tax if those assets are valued above the federal exemption amount, $16,000 in 2022. In the case of both gift and estate taxes, anything given to or inherited by your spouse cannot be taxed if they’re a U.S. citizen.
State taxes: Depending on the state, you may face additional gift and estate taxes. Some states, for example, levy an inheritance tax that your beneficiaries must pay in addition to any federal taxes.
Top Strategies to Lower Minimizing Your Estate Tax Burden
Give During Your Lifetime
Why consider gifting your assets? In addition to helping you support your family members and loved ones while you’re here, it reduces their tax burden after you’re gone. For 2022, you’re able to give away up to $16,000 per person without reporting taxes on your gifts, and married couples are able to give up to $32,000. This means if, for example, you have 4 adult children and 10 grandchildren, you could gift up to $448,000 every year—a significant reduction in your taxable estate.
If you’d like to gift even more, there are other strategies you can follow, including making tuition payments directly to your heir’s educational institution, paying medical expenses directly to a medical facility, or gifting assets to a charity.
Establish an Irrevocable Trust
If you leave, for instance, your stock portfolio and properties to your children without setting up a trust, they would be subject to their own income tax and as well as the properties’. This means, since their income is now higher, their tax rates become higher, too. To eliminate this burden, you can establish an irrevocable trust, which allows you to transfer assets out of your estate. While the trust can’t be modified without permission from the beneficiaries, an irrevocable trust is not subject to estate taxes.
Want to Know More Strategies?
Thorough estate tax planning is essential to protecting your loved ones and ensuring they receive as much as possible of what you’ve left behind, and with our holistic wealth planning services, we are here to help make that happen. Get started today.
Please note: The information provided does not, and is not intended to, constitute legal advice; instead, all information, content, and materials are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Readers should contact their attorney to obtain advice with respect to any particular legal matter.
