As you consider how you want your assets to be disbursed after your death, it’s important to carry out careful estate planning preparation to minimize taxes and provide your loved ones with a generous financial cushion. This portion of estate planning can be confusing and frustrating but, with the help of the attorneys at BBA Law in Shelby Township, you can make the smartest investment choices and mitigate the taxes that will be applied to your estate.
Types of Tax Planning Advantages
As you conduct estate planning, it’s important to focus on the present but also the future. What will your estate look like as it ages, as you go through life? What exemption limits exist and how might they change over the years? Work with a professional estate planner to consider all types of tax planning advantages such as:
- Irrevocable trust: An irrevocable trust can reduce potential future tax liability and move assets out of your taxable estate. There are many features to a trust that can help minimize your future estate tax burden, like moving highly appreciated assets out of the estate or covering the cost of any income tax owed on assets in the trust every day.
- Trusteed IRA: You can preserve the tax advantages of retirement assets like a 401(k) and preserve the advantages you already had with this account by integrating them into your wealth transfer plan.
- Charitable bequest: This move can reduce or eliminate the estate tax burden and it usually allowed as a deduction when calculating the net value of the taxable estate.
- Gift tax exemption: Every individual has a lifetime estate exemption (basic exclusion amount or unified tax credit). This exemption identifies a portion of assets you can give away over the course of your life or after your death without being subject to taxes. Married couples can double the amount.
- Generosity: This is one of the easiest ways to remove assets from a taxable estate. Financial donations like paying tuition bills or making an annual gift to a 501(c)3 organization significantly shrink the taxable estate. Sometimes individuals or couples realize they’d rather their assets be put toward good things while they are alive to witness it, rather than holding their assets in their estate year after year.
Federal Estate Taxes and State Estate Taxes
There are many types of transfer taxes that can be imposed on your estate at both the federal and state levels including:
- Federal estate tax
- Federal gift tax
- Federal generation-skipping transfer tax
- State inheritance tax
The right estate plan helps control the transfer of wealth, fulfills any philanthropic goals, and minimizes your tax liability.
There are pros and cons to every type of tax planning and not every kind of move is right for every person. It’s worth considering all the options available to you and whether the most tax-friendly ones have a place in your overall wealth transfer plan.
Get Tax Planning Help While Estate Planning
All the assets you’ve accumulated in your lifetime but have not taken advantage of yourself will go to your heirs when your estate is settled if you deem it so. Estate taxes can potentially reduce the size of a person’s estate or disrupt the plan you made for giving to charity.
Through estate tax planning, supported by the experienced team at BBA Law, your future tax liability as it falls to your heirs can be minimized so the legacy you leave behind is maximized. We have the resources and knowledge to administer every estate with the professionalism and discretion it deserves. Contact BBA Law to schedule a consultation.