A major part of estate planning is developing an understanding of your potential tax liability and minimizing this amount.
The federal estate tax, which is imposed on large estates, can be reduced through various estate planning techniques. The following is a list of five methods you may want to think about as ways to reduce your estate taxes:
- Irrevocable Life Insurance Trusts. By transferring small amounts of the estate (equal to the amount of a life insurance premium) to an irrevocable life insurance trust, a person can reduce the size of his or her taxable estate while creating a much larger asset (the life insurance proceeds) outside of the estate. The life insurance proceeds are generally not taxable.
- Charitable Transfers. Lifetime charitable transfers or gifts to charities upon death can reduce the size of the estate and thereby reduce estate taxes. Lifetime gifts provide the added benefit of an income tax deduction.
- Marital Transfers. Generally, lifetime gifts and bequests at death to one’s spouse are not subject to estate taxes.
- Lifetime Gifts to Children. Each person can usually make annual lifetime gifts up to $13,000 for each of their children without incurring a gift tax. This will reduce your taxable estate at death.
- Uniform Transfer to Minors. This is a form of gifting used where children are still minors. The gift is given to a custodian for the benefit of the child, and is distributed to the child when he/she reaches the age of majority. The tax benefits are similar to that of lifetime gifts.
Besides reducing estate taxes, estate planning encompasses a great many legal topics - many of which deal with plans for handling your property or caring for your loved ones after your passing.
If you need help setting up your estate plan, you may want to consider using a service like LegalStreet. For only a low fee, you can receive a personal estate planning package from a qualified attorney near you.
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