When working on an estate plan, most people dread thinking about taxes. For those that don’t, your loved ones could be hit with estate taxes once you pass. While you may not be able to avoid estate taxes entirely, there are ways that you can reduce them and in some cases, avoid them altogether. Here is what you need to know.
Irrevocable trusts are one of the most common estate planning vehicles to help reduce or avoid an estate tax. An irrevocable trust can help keep your family from struggling with finances when you die. Property in an irrevocable living trust is not counted towards your estate and so it is exempt from those taxes.
Lifetime gifts can be a lot more beneficial than leaving all of your assets in a trust or will to pass on to your beneficiaries. Now, there are gift taxes if you give over a certain dollar amount in assets. However, if you want to decrease the value of your estate, you can gift your loved ones until your estate has a lower value. As an added benefit, you are able to see the impact that your gifts have on your loved ones, rather than waiting until after you die for your family to receive benefits from your estate.
One way that you can bypass the estate tax is to donate some of your assets to charity through a charitable trust. If you have a charitable trust, then the assets will get passed on to a tax-exempt charity. When you do this, you have a lower estate value. The lower the value of your estate, the more likely you are to have less of an estate tax.
Limited partnerships can be helpful if you own a business. Say that you want your business to pass on to your children after you die. The best way to do this is through a family limited partnership. Normally, you will have a general partnership and your heirs and other family members can become limited partners. In this relationship, you will still call all of the shots for the company. Your partners, however, will have some stake in the company. This will make your estate smaller and hence decrease your taxes.
If you want to try to avoid a large estate tax, it is important that you think about the above factors. In addition, speaking with a Sacramento estate planning lawyer can streamline the process and give you peace of mind. Consult with an estate planning lawyer as soon as possible for more information.
Thanks to the Yee Law Group for their insight into estate planning and reducing taxes.