Tax Planning in Your Estate Plan
Benjamin Franklin is attributed as having said that only two things are certain in life: death and taxes. The way you structure your estate plan will have considerable tax consequences, so it is important to plan accordingly. There are different tax-related advantages and disadvantages associated with each type of estate planning tool. Failure to plan for estate planning tax consequences can leave your surviving loved ones with unexpected and unpleasant tax-related surprises. An estate planning attorney can explain the potential tax implications and help you minimize your tax liability through strategic estate planning design.
Identifying Your Estate Planning Goals and Priorities
To maximize the effectiveness of your estate plan and minimize tax liability, you must first identify what your personal estate planning goals and priorities are. Do you want to leave a sizable inheritance for your children and grandchildren? Do you want to make a donation to a charitable organization? Do you want to plan for the possibility of becoming incapacitated through illness or injury before your death? The answers to these questions will set the foundation of your estate plan. Once you have determined your estate planning goals, you and your attorney can start developing a plan that reduces negative tax consequences.
Reducing Estate Taxes Through Effective Estate Plan Design
There are countless ways to minimize estate taxes. One of the most effective methods is to transfer property during your lifetime through martial transfers or gifts. As of 2021, you can gift up to $15,000 per recipient on an annual basis without incurring gift tax. Gifts above the $15,00 threshold count against the $11.7 million annual exclusion. There is no annual limit to the amount that you can gift your spouse if your spouse is a U.S. citizen.
Another common method of reducing estate taxes is to transfer assets to an irrevocable trust. Using an AB trust, life insurance trust, or another type of irrevocable trust can significantly reduce the size of your taxable estate. If you own a family business that meets certain criteria, the IRS allows you to deduct the business from your gross estate which reduces your estate tax liability even further. The family limited partnership is an estate planning tool that lets business owners transfer ownership of the business to their children at the children’s tax rate. These are just a few of the many ways that you can reduce estate taxes through estate planning.
Call Us Today to Learn More About Planning for Taxes in Your Estate Plan
The highest estate tax rate is 40 percent, which can have a tremendous impact on the amount that you leave to your loved ones and other beneficiaries. This is why it is crucial to structure your estate plan with tax implications in mind. For help building your estate plan, contact an experienced Naperville estate planning attorney at the Gierach Law Firm. Call 630-756-1160 for a confidential consultation.