SmartipediaHow do I minimize estate taxes?
Nobody likes paying more taxes than they have to, right? When it comes to estate taxes, a little planning can go a long way in minimizing what you owe. Let’s break it down in simple terms:
What Are Estate Taxes?
Estate taxes are levied on the transfer of property after someone passes away. Think of it like an extra tax on your total net worth when you die. The federal government and some states collect estate taxes to get their cut of your lifetime earnings and assets.
Strategies to Minimize Estate Taxes
Give It Away
One of the easiest ways to reduce your taxable estate is to start gifting assets to your heirs while you’re still alive. The IRS allows you to gift up to $16,000 per person per year without triggering gift taxes. So if you have three kids, you could gift up to $48,000 annually without owing any taxes on those gifts.
Set Up a Trust
Trusts are legal entities that can own assets on behalf of your beneficiaries. By transferring property into an irrevocable trust, you remove those assets from your taxable estate. Just be aware that you’ll lose some control over the assets once they’re in the trust.
Buy Life Insurance
Permanent life insurance policies can be structured to pay out directly to your beneficiaries, bypassing your estate entirely. The death benefit from these policies is generally free of income and estate taxes, providing your heirs with a tax-free inheritance.
3 Surprising Facts
The federal estate tax exemption for 2023 is a whopping $12.92 million for individuals. Married couples can shield nearly $26 million from the estate tax.
Several states have their own estate or inheritance taxes with much lower exemption thresholds than the federal level. In some cases, even modest estates could be subject to state-level estate taxes.
Certain assets don’t receive a “step-up” in basis when inherited. This means your heirs could owe capital gains taxes when they sell those assets, even if the estate itself wasn’t taxable.
Learn More
Gift Taxes: How to leverage the annual gift tax exclusion to transfer wealth tax-efficiently.
Charitable Trusts: Using charitable trusts to minimize taxes while supporting your favorite causes.
Estate Planning: Comprehensive strategies for protecting and transferring your assets according to your wishes.