Estate tax planning is a crucial aspect of financial planning that often goes overlooked until it's too late. Most people are aware of the importance of creating a will, but simply having a will may not be enough to adequately protect your estate from excessive taxation.
This article highlights a few things you might overlook with estate tax planning and why they matter.
The Impact of Gift Taxes
Many people don't realize that giving away assets during their lifetime could significantly impact their estate taxes. The federal government imposes gift taxes on gifts over $17,000 annually. So if you plan to give more than $17,000 to your child or a relative, you could be subject to gift taxes.
While there is a lifetime exclusion that allows for a certain amount of tax-free gifting, it's important to understand how these laws work and how they can impact your estate tax planning. You also understand the different techniques that can help you reduce your tax liability.
For example, you can gift up to $17,000 per person annually, and if married, your spouse can do the same. This results in a total of $34,000 per year as a couple. The gift is tax-exempt, but it still counts towards the lifetime exclusion.
State Estate and Inheritance Taxes
Some states have their own estate and inheritance taxes in addition to federal estate taxes. These taxes have different rates and exemptions depending on the state.
For example, some states may exempt smaller estates from taxation, while others may have a flat tax rate regardless of the size of the estate. Others have reciprocity agreements that allow you to claim a tax credit for estate taxes paid to another state. This can make it easier to plan your estate and reduce the total estate tax burden.
It's important to understand your state's estate and inheritance tax laws, so you can plan accordingly. You could also use various techniques, such as trusts, to reduce the amount of taxes your heirs will have to pay.
A revocable living trust strategy allows you to keep control of your assets while alive and create a mechanism for transferring them upon your passing. Irrevocable trusts are also an option for those who want to protect assets from various entities, including creditors. You only need a great estate tax consultant to help you establish a trust that benefits your unique situation.
Remember, estate planning is not something you should put off until later. When you take the time to create a solid plan now, you ensure that your legacy is protected and your family's future is secure. So, don't overlook these crucial aspects of estate tax planning if you want to maximize your estate for future generations.
For more information on estate tax consulting, contact a professional near you.Share