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The uncertainty of what the estate tax will be in years to come is what is motivating individuals to consider their assets and safeguard themselves from having to leave their beneficiaries to pay millions of tax dollars in the future. Having a well thought out plan in place will help secure your assets and protect your legacy.
It is important not to underestimate the value of your estate or how fast the amount of an individual’s assets can add up. Once you hit the $5.45 million mark, your heirs will be subject to pay a staggering 40 percent of your estate to cover its tax requirements. Being aware of how valuable your estate is will pave the way for your estate planning approach.
While there are numerous options to reduce estate taxes, some are easier than others. Consider the following when planning for your estate:
There are many different types of trusts offering a multitude of benefits related to your estate planning. Trusts not only help minimize taxes, but they can allow the beneficiaries to have access to the assets sooner than if they were to be transmitted through a will. And while some trusts are irrevocable, deeming assets no longer owned by you, it is still possible to benefit from them while you’re still alive.
One of the most influential trusts is the Qualified Personal Residence Trust (QPRT). This trust removes a big part of many people’s estate, their house. With a QPRT trust, your home becomes its sole asset for an established amount of time. While your home is a part of the trust, you are still able to reside there and once the term is up, the home then becomes the property of its beneficiaries.
Even though life insurance policies are exempt from income taxes, they are still considered an asset toward your estate. Setting up an irrevocable life insurance trust (ILIT) is another way to secure your assets. With an ILIT, your insurance value is no longer a part of your estate as long as you live for three years following the transfer of a current policy to the trust.
Along with setting up different trusts, giving gifts during your lifetime can also be beneficial to you and your loved ones while you’re still able. This option not only helps you reduce your taxable assets, but also allows your heirs to inherit money without paying taxes on them. Every year you can give up to $14,000 tax free to as many beneficiaries as you wish or $28,000 if you’re married. These gifts can significantly decrease the size of your estate depending on how many people you choose to gift in a given year.
Other options of tax-free giving include paying for tuition directly to the institution, covering medical and health expenses, and donating charitable gifts.
If you’re looking for ways to preserve your wealth for your heirs, consider setting up trusts and implementing tax-smart gifting strategies to reduce the size of your taxable estate. Become familiar with the additional ways estate planning can minimize your tax liabilities by visiting our 2016 Web Estate Planning Guide or contact our tax advisors today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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