Estate planning is an ongoing process. Therefore, people must start as soon as they have a substantial asset base. After all, a lack of estate planning leads to hefty financial burdens on their loved ones in the form of taxes.
—
People spend years building their estates and wealth, but then, there comes a time when they have to give it all away. Estate planning is about managing financial situation in case of incapacitation or death.
It involves the owner transferring the assets to their loved ones and settling the estate taxes, debts, etc. It also includes other considerations like assigning a power of attorney and guardianship of minors and pets.
Now, the question is, why do people indulge in estate planning? There could be various reasons like preserving wealth, providing for a surviving spouse, funding children’s education, or leaving a legacy behind.
Regardless of the reason, one thing every person considers is the taxes involved in estate planning. Governments have heavily taxed the estate sector, reducing the value before assets get distributed to the beneficiaries.
Thinking about planning estate, look for tax-efficient ways that don’t cost them an arm. Here, we have also outlined a few tips and tricks for tax-efficient estate planning to minimize its financial impact.
1. Open an Irrevocable Trust (ILIT)
Even though people will come across many trust funds, an irrevocable life insurance trust can be their safest bet. It lets owners transfer wealth to their beneficiaries without incurring income or estate tax liability.
This trust fund has been designed to ensure death benefits remain outside the taxable estate. But people must declare or assign power of attorney to any of their beneficiaries.
If people have made a Will, then declare their power of attorney. Otherwise, ask an attorney, who has power of attorney after death if there is no will to understand how it works. After this, people must make annual exclusion gifts of up to $16,000 per beneficiary to the irrevocable trust.
People can notify them to withdraw the funds in a limited period. The temporary right to withdraw will create a present interest in the gift. It allows the trust fund to qualify you for the annual gift tax exclusion, saving you massive money.
Remember, this trust fund must be opened three years before their death. Therefore, attorneys recommend creating it as soon as possible. Also, set their terms and conditions wisely because they cannot alter the trust fund without the trustee’s consent.
2. Utilize Life Insurance
Many people resort to life insurance to fulfill their tax obligations after death. After all, insurance proceeds are sufficient to cover different expenses. People can pay off the income tax on the deemed dispositions of the assets without selling them. Likewise, it can fund business buy-sell agreements and retirement plans.
Besides helping them with estate taxes, life insurance can give them and them loved ones peace of mind. They will have a financial cushion to rely on after their demise, ensuring they don’t have to deal with financial hiccups.
And do people know the best part? All proceeds received from life insurance by the beneficiaries are tax-free.
3. Open A-B Trusts
Most married couples decide to open an A-B trust fund. It divides all the assets into two after the first spouse’s death. That way, trust A becomes the survivor’s trust, whereas trust B becomes the deceased trust.
It enables them to leave the estate to their spouse; hence, they won’t have to pay taxes on the capital gain immediately. It gets postponed until the spouse transfers property to someone, sells the asset, or dies.
Otherwise, the tax will be due when they die, reducing the amount their heirs will receive. Believe it or not, this strategy does wonders for properties with substantial capital gains, helping people save on taxes.
4. Freeze Estate
Another strategy to save up on taxes is to limit death taxes. For this, people have to lock in their estate’s current value and, thus, the property’s tax liability while attributing the value of future capital gain. If the assets increase by any amount, the gain gets transferred to another person, like your spouse or child.
However, people must freeze the asset on the date of transfer to ensure no additional tax liability is involved.
As a result, the potential capital gain tax at their death will also be frozen. It will enable the estate planner to calculate the tax liability and plan for income tax payments.
The only drawback of asset freezing is that people who own the asset cannot sell it until after your death. They must unfreeze the assets, fulfill their tax obligations, and sell them.
5. Offer Charitable Donations
Fortunately, charitable donations aren’t taxable by the government. Hence, people can ease their estate tax burden by donating to a non-profit organization with tax exemption. There are mainly two ways to go about these donations – First, they can leave some amount to a charitable leads trust.
Second, they can open a charitable remainder trust. Both will enable them to give gifts to non-profit organizations, reducing the estate’s value.
Accordingly, it will reduce the tax payable on their estate planning. However, they must understand the various charities to determine which donation will be the best to include in their estate plan.
People can either consult with their attorney or their beneficiaries to finalize this.
6. Create a Family Limited Partnership
Another way to protect and transfer their assets to their loved ones is by creating a family-limited partnership. Here, it would help if they made their family members listed partners in their estate, more like sharing the estate’s ownership.
They will own stocks of their estate and become partial owners. Despite that, they will have complete control of their estate; with time, they can transfer assets to their family.
Since it is a limited partnership and their family has limited liability, they won’t be liable to pay taxes. When they inherit their entire estate, they will already be the minority owners.
In addition, the estate will become smaller, and tax implications won’t be troublesome. Initially, this process might seem complicated, but experienced lawyers can help them develop the best strategy and save up money spent on taxes.
Final Thoughts
Truthfully, estate planning is an ongoing process. Therefore, people must start as soon as they have a substantial asset base. After all, a lack of estate planning leads to hefty financial burdens on their loved ones in the form of taxes.
People can plan their estate in a way to escape massive taxes and transfer the assets to their family members. It could be possible by opening trust funds, participating in donations, or freezing the estate.
About Us: Bogart Wealth is an independent, fee-only wealth management firm guiding corporate executives, professionals, and families on their paths to and throughout retirement
Contact Info:
Name: Judy Robinson
Email: Send Email
Organization: Judy Robinson
Website: https://bogartwealth.com/
Release ID: 89105091
In the event of any inaccuracies, problems, or queries arising from the content shared in this press release, we encourage you to notify us immediately at error@releasecontact.com. Our diligent team will be readily available to respond and take swift action within 8 hours to rectify any identified issues or assist with removal requests. Ensuring the provision of high-quality and precise information is paramount to us.
