Strategies to Protect Your Estate from Taxes

You’ve worked hard and made smart choices to set your family up for long-term success. As you begin the estate planning process, however, the impact of estate taxes becomes too obvious to ignore. Imposed upon the overall value of an estate at the time of death, estate taxes can chip away at the wealth you’ve worked so hard to earn and save. If you’re in a state that taxes heirs on the money you bequeath them, your family may even be taxed twice.

Currently, the federal estate tax applies, for a single person, to assets in excess of $11.4 Million, and, for a married couple, to assets in excess of $22.8 Million. These amounts are set to revert back to approximately half by January 2026 unless the current law changes.  State inheritance and estate tax rates vary by state.  For your reference, states and territories with their own estate taxes (in addition to the federal estate tax) include:  Washington, Oregon, Minnesota, Maryland, Illinois, New York, Vermont, Maine, Massachusetts, Rhode Island, Washington D.C., and Connecticut.  Depending on the state, the threshold above which the state estate tax applies is much lower than the federal threshold, ranging from assets in excess of $1 Million (Oregon and Massachusetts), to assets in excess of $5.7 Million (Maine and Washington, D.C.).  States with their own inheritance tax (in addition to federal and state estate taxes) include:  Nebraska, Iowa, Kentucky, Pennsylvania, New Jersey, and Maryland.

If you’re hoping to minimize the impact of these tax burdens, some of the following strategies may be useful:

Protect Your Assets with a Trust

Putting your wealth into a trust is one of the most effective ways to avoid taxes. While some may feel reluctant about allowing a third party to control their assets, please keep in mind that you can select a family member or trusted friend to serve as Trustee and be in control. Since there are many different types of trusts available, speaking with one of our experienced estate planning attorneys is key to determining what type of trust is right for you.  A credit shelter trust for assets, for instance, is a planning tool for surviving spouses. The surviving spouse will have access to the trust, but upon his or her death, it will not be included in his or her estate.  This means that the amount in the credit shelter trust will not push the surviving spouse’s asset limit toward or beyond the thresholds indicated above for estate taxes to apply.

Give Gifts Now

Giving away your personal wealth to individuals or charities while you’re still living is another strategy worth considering. Over a lifetime, individual Americans are currently allowed to gift $11.4 Million before they face a possible gift tax.  You can currently give up to $15,000 per person without needing to file a gift tax return. If you give more than $15,000, the amount in excess must be reported to the IRS on a gift tax return, and that amount is deducted from the overall $11.4 Million you can give away during your lifetime.  The best part? There’s no limit on how many people you can give $15,000 to in a single year.  Start giving while you’re healthy and of sound mind, and you could significantly cut the impact the estate tax will have on your family down the line.

Factor Taxes into Your Life Insurance Policy

As Benjamin Franklin once wrote, nothing is certain except death and taxes. Indeed, it may be impossible to sidestep taxation of your estate entirely. To shield your family from the impact, consider buying a life insurance policy to cover the costs. Since this money doesn’t go through the probate process, your loved ones will receive their shares directly.  Be sure to set up an irrevocable life insurance trust when buying your policy – otherwise, you risk the value of the policy being added to the estate and possibly making your tax bill even more expensive.

Guard Against Estate Taxation Now

Everyone’s estate planning needs differ. If you’re serious about protecting your loved ones from inheritance and estate taxation on your assets, please contact the experienced estate planning attorneys at Wilson+Miller today for a consultation: (501) 221-7776.


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