People create estate plans to help protect their assets and to ensure that they are distributed according to their wishes, even after they pass away. Estates are, however, still subject to taxes, which can leave heirs and beneficiaries with much less than they anticipated.
Fortunately, there are a few different strategies that testators and trustors can take to protect their heirs from excessive taxation. Whether you have an existing estate plan or are just starting the process, planning for these taxes is important. For help protecting your own estate from excessive taxes, please reach out to Alan G. Orlowsky, an experienced Chicagoland estate planning attorney today.
What are Estate Taxes?
Estate taxes are a type of tax that is imposed on the overall value of an estate by the federal government. Basically, everything that a decedent owned at the time of his or her death is subject to taxation. This is not, however, the only estate tax that Illinois residents must worry about, as the state also imposes an additional estate tax.
While these taxes only apply (on the federal level) if an estate’s value exceeds $11.7 million, the threshold in Illinois is much lower at $4 million. Estate taxes are not the only type of tax that beneficiaries could face upon inheritance. Heirs could, for instance, be responsible for capital gains taxes on any assets that they sell or be held liable for income taxes on retirement accounts.
Strategies for Protecting Your Estate
There are several ways to keep your estate from being heavily taxed by the government. Some estate planners, for instance, choose to put their assets into an irrevocable trust. Doing so officially transfers ownership of those assets to the trust itself. Funds or assets in that trust are not then, subject to estate taxes.
Testators can also reduce their estate taxes by giving some of their assets away during their lifetime. Under federal law, people can give up to $15,000 per person per year without incurring any tax obligations. These gifts are tax-free for recipients, but can also help reduce the value of a person’s estate, lowering the chances that it will be subject to estate taxes. Charitable donations and gifts for tuition or medical expenses that are given directly to an institution are also not taxable and won’t count toward the value of a person’s estate for tax purposes.
Converting traditional retirement accounts, like 401(k) or IRA plans, into Roth accounts can also help heirs avoid a tax bill. This is because those who inherit the former also inherit the income tax liability that goes along with any distributions from those accounts. By converting these kinds of plans into Roth accounts, which have tax-free distributions, estate planners can help protect their heirs from unduly burdensome taxes.
Call Today to Learn More About Protecting Your Estate
If you need help protecting your own heirs from being unfairly taxed after your death, please reach out to the experienced Chicagoland estate planning attorneys at Orlowsky & Wilson, Ltd. Attorneys at Law. You can reach the lawyers at Orlowsky & Wilson, Ltd. by calling 847-325-5559 or by sending an online message.