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Strategic estate planning can keep more of your assets for your heirs

On Behalf of | Jun 8, 2020 | Estate Planning

With the economic downturn of the past few years finally starting to turn around, attention is finally returning to an important but oft-overlooked financial planning issue: the impact of estate taxes. Estate tax rates can, depending on the assets of a person’s estate, carve a huge chunk out of the property a deceased loved one left behind for his or her heirs.

Federal Treatment of Estate Tax

It is possible to structure an estate plan in such a way as to avoid the brunt of estate tax liability, even if there are significant assets, real estate or a family-owned business to consider.

In fact, the Internal Revenue Service (IRS) has recently implemented a lifelong estate tax exclusion amount of $5 million per individual (adjustable for inflation), with any leftover exemption not taken by one spouse carrying over to his or her surviving partner. This is known as portability, and might prevent any estate tax burden at all from falling to heirs. Having such a large federal exclusion makes it possible for nearly everyone to get the benefit of a sizable reduction in estate taxes.

Additional Methods of Minimizing Tax Burdens

Should your personal financial situation not be adequately helped by federal exemptions, or if you for some reason don’t qualify for them, there are other estate planning methods that can be used to cut the impact of taxes. For example, gifts of up to $14,000 annually (adjustable for inflation) can be made to individuals without tax implications for the giver.

Gifts to charitable organizations, political groups, and universities or other educational institutions (for tuition only) are unlimited, and, if properly reported, will not trigger the standard 35 percent gift tax rate. Similarly, the payment of medical expenses for another is unlimited, provided the payments go directly to the care providers. There are also no limits on the number, type or value of gifts that can be given to a spouse without triggering gift tax burdens.

Skilled estate and financial planners will also be able to recommend various trusts that can avoid estate tax liability, thus maximizing the principal that will flow to heirs in the future.

Finding help

Do you have questions about how estate tax can affect your financial well-being? Want to learn more about estate planning methods that can help prevent massive estate tax headaches in the future? Interested in learning about gifts, trusts or other ways by which estate tax is minimized? If so, seek the advice of an experienced estate planning attorney in your area.