5 Ways You Can Reduce Your Estate Tax

When you’ve worked hard all your life to build an estate, the thought of it being partially consumed by taxes is a troubling prospect. Federal estate taxes are high (40% in 2018) and have to be paid in cash soon after you pass. If your estate doesn’t have the necessary cash, your cherished assets may have to be liquidated to ensure that the taxes are paid.

Fortunately, there are ways that you can minimize and even eliminate the amount of tax due on your estate. Let’s take a closer look at five of them.

  1. Marital Gifts

If you gift money and property to your spouse both during and after your lifetime, these assets are not generally subject to estate taxes unless your spouse is not a U.S. citizen, in which case there is a gift tax exclusion cap of $152,000.

  1. Tax-Free Gifts to Family

Under federal law, you are allowed to gift up to $15,000 per year ($30,000 if married) to as many people as you like. So if you have two adult children and three grandchildren, you can reduce your taxable estate by $75,000 per year, or $150,000 if you and your spouse bestow gifts together. If you gift higher amounts, the excess will be treated as a taxable gift and applied to your $5.6 million gift and estate tax exemption.

  1. Irrevocable Life Insurance Trusts

You can reduce the size of your estate by transferring small amounts to an irrevocable life insurance trust. These transfers, which are the amount of a life insurance premium, minimize your taxable estate while creating a larger and generally untaxable asset – the life insurance proceeds.

The beneficiary of the policy is usually the trust itself, so the money can be kept in the trust for years and distributed periodically to your family members. One of the biggest advantages of an irrevocable life insurance trust is that the proceeds can’t be touched by creditors or dwindled by relatives with irresponsible spending habits.

  1. Charitable Transfers

Making charitable transfers during your lifetime or bestowing gifts to your favorite charity after death can lower the value of your estate. In the case of lifetime gifts, you can enjoy the added benefit of an income tax deduction. Gifting can even be structured in such a manner that you retain the right to use the asset until your death.

  1. Family Limited Partnership

If you have a closely-held and family-run business, a family limited partnership can assist you in transferring ownership to the next generation. Added benefits include protection of family assets from creditors and taxation of partnership income at the lower tax rates that apply to the children. Family limited partnerships are flexible and can be revoked if necessary.

When you want to preserve as much of your estate as possible for the next generation, an experienced estate planning attorney can present you with strategies that represent the best solution for your individual circumstances. At Thomas Walters Estate Planning, we are dedicated to helping our clients make arrangements that give them peace of mind while protecting their loved ones and their legacy. For more information or to schedule a consultation, please contact us.

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Thomas-Walters PLLC

Estate planning is about more than just signing documents and moving assets around. At Thomas-Walters Estate Planning, we think it’s also about protecting yourself and the people you care about most.

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