By now, every family needs to take care of estate tax planning. When you are wondering about transferring wealth tax planning and estate planning go hand in hand.
As you are cautious about estate tax planning, it can help reduce your future tax liability while maximising the legacy you leave behind. During your entire lifetime, you may have accumulated some assets. By now, you want to resettle the wealth and assets to your heirs or any favourite charity. As you indulge in estate planning arrangements, you should not forget about estate taxes.
How Tax Impacts The Estate Planning
Whenever you are speaking about estate planning, tax does matter a lot. If you don’t worry about the taxes, it can be healthy at times. On the higher end, federal taxes can reach up to 40%. Especially if you have assets over 1 million, then you need to provide a tax of over 4 million dollars. Due to this reason, you will be only giving behind 6 million dollars.
You can look for a strategy to get rid of this excessive tax. Every individual has a gift tax exemption or lifetime estate. It is referred to as a basic exclusion or unified tax credit. As you think ahead of tax planning, you need to estimate the size of the estate that you are having. Only after taking care of the exemption limit will you be able to formulate an estate strategy or plan.
However, such an exemption designates the total amount of assets you will be able to give away either after your death or during your lifetime. You can also do it without being subject to any kind of gift tax or federal estate tax.
Taxes That Come Into Play
There are numerous types of transfer taxes at the state or federal level. Some of these taxes include:
● Estate Tax
With the transfer of the taxable estate in case of death, your assets, securities, cash or other properties would be under the estate tax. Especially, if the value of all these estates surfaces any federal exhibition limit. But the assets that are inherited by your family members or spouse would not come under the estate law due to the provision of the unlimited deduction.
● Gift Tax
Whenever you give away your assets without any expectations of return, you are subjected to the gift tax. Especially, if your estate or lifetime exceeds the amount of federal exemption, you can give it to your later half. However, if you live in the US, you are excluded from this kind of tax.
Minimise The Estate Tax Burden With These Tips
If you anticipate or have a large estate, you need to find ways for putting your assets into the shelter. It can avoid the possibility of substantial tax hits and reduced exemption limits. Here are the steps you need to follow to minimise the tax burden.
● Giving To Reduce The Taxable Estate
With the help of an annual exclusion limit, one can remove the assets from the taxable estate every year by gifting them to their heirs. The best part is that you can put the medical bill or tuition bill without providing any tax. But this situation can persist, as long as you make the payment directly to the school or any medical facility.
You can also provide it to the charity or any 501 C3 organisation to remove all the acids from the personal taxable estate each year.
● Using Irrevocable Trust
It is one of the ways in which you can reduce future tax liability. The irrevocable trust can help you explore and consider different strategies to fit your situation. Moreover, the unique feature of these trusts can help minimise the estate tax burden. With the help of a spousal lifetime access trust or grantor-retained annuity trust, you would be able to move all your highly appreciated assets out of your estate. In fact, the defective grantor trust can allow the owner of the trust to pay income tax on the asset housed within the trust. It means you can reduce your taxable estate every year as you keep covering the costs related to annual taxes.
Consult Your Advisors Today
The planning decision regarding estate tax involves a lot of complex decision-making. Particularly, you need to know about tax and estate before you indulge in any planning strategy. But if you hire an estate planning attorney or a financial advisor, they can help you with expert strategies to transfer the wealth without maximising the taxes. Hence an optimal strategy and a well-versed advisor can help you in this endeavour.