Strategies for minimizing estate taxes

On Behalf of | Apr 15, 2024 | Estate Planning

Minimizing estate taxes is an important part of estate planning that can significantly affect the financial legacy you leave behind.

You can use specific strategies to help reduce the estate taxes your heirs might face.

Gift assets during your lifetime

One straightforward way to reduce your estate’s size and the corresponding taxes is through gifting. The IRS allows individuals to give a certain amount each year to another person without it counting against the estate tax exemption. Regularly gifting money or assets can gradually decrease the size of your estate.

Establish a trust

Setting up certain types of trusts can also shield your assets from high estate taxes. Trusts such as irrevocable life insurance trusts and bypass trusts can remove assets from your estate while still providing benefits to your beneficiaries. These trusts must be set up correctly to ensure they meet legal standards and genuinely benefit from tax reductions.

Use the marital deduction

Thanks to the marital deduction, transferring unlimited assets to your spouse during your life or upon death is tax-free for married individuals. However, planning should not stop here, as it may only postpone taxes until the spouse’s death. Further measures, like credit shelter trusts, can be useful for couples to maximize their estate tax exemptions.

Donate to charity

Donating part of your estate to charity not only benefits a cause you care about but also reduces your taxable estate. Charitable donations are deductible from the value of your estate, and setting up a charitable trust can provide you and your heirs benefits while still contributing to charity.

Invest in life insurance

Purchasing life insurance can be a strategic move for estate planning. The death benefits from life insurance can provide liquidity to your heirs to pay estate taxes and other expenses without selling other assets. Make sure the life insurance policy is owned by a trust or another person to ensure it does not add to your estate’s value.

These strategies require careful planning and consultation with estate planning professionals. Attorneys and financial advisors can provide guidance tailored to your specific situation, helping ensure your estate plan effectively minimizes taxes and aligns with your long-term goals.