One of the most important goals for many testators is to leave as much of their property to family members and loved ones as possible. Unfortunately, the taxes assessed against an heir or beneficiary’s inheritance, which are also known as estate taxes, after a testator passes away, can significantly reduce the size of the inheritance they are able to collect. There are, however, a few steps testators can take during the estate planning process to help reduce the amount their loved ones will have to pay in estate taxes. To learn more about minimizing your own estate taxes, please contact one of our dedicated estate planning attorneys today.
Putting Your Assets Into a Trust
One of the most tried and true methods of lowering estate taxes is to place assets into a trust. This is because putting assets into a trust officially changes ownership of the property to the person named as the trustee, which in turn means the testator can avoid having taxes assessed against the property that is included. There are a number of different types of trusts that can serve this purpose. For instance, many testators choose to place some of their assets into charitable trusts, which allows them to benefit from a charitable income tax deduction at the time the trust is funded, as well as after their passing. Similarly, some testators may want to consider creating a Qualified Personal Residence Trust, which allows the maker to live in his or her home for a certain period of time, after which, the residence will pass on to the listed heirs, although at a reduced price for estate and gift taxes.
Giving Away Some of Your Assets
Another way many testators attempt to reduce their estate taxes is to give away some of their assets before they pass away. Under federal law, taxpayers are permitted to give up to $14,000 a year to as many people as they wish without incurring any tax obligations. When a person exceeds this amount, however, the extra funds will be considered taxable. On the other hand, charitable gifts, as well as gifts for tuition and medical expenses that are given directly to an institution, are unlimited.
Making distributions in this way can help testators avoid the necessity of assessing taxes at a later date. It is even possible for testators to give gifts to their spouses by creating Spousal Lifetime Access Trusts for the benefit of those individuals.
Purchasing Life Insurance
Testators who are looking to reduce their estate taxes may also want to consider purchasing extra life insurance to cover these costs. However, to do this properly, a testator must usually create an irrevocable life insurance trust and then purchase the policy through that trust. Those who take this step could use the policy to replace assets given to charities and to cover any remaining estate taxes.
Call Our Skokie Estate Planning Legal Team Today
For help lowering your own estate taxes, please contact one of the dedicated estate planning attorneys at Orlowsky & Wilson, Ltd. Attorneys at Law by calling 847-325-5559 today.