The estate tax can be a big surprise for many people, especially if they haven’t planned for it. This can sadly lead to some unfortunate situations where family members must deal with losing their loved ones and the extra burden of spending the assets they would have otherwise inherited on taxes. You can avoid these issues by planning so that you can adjust before they become an issue.
We’ll cover here how estate taxes are calculated and some effective strategies you can use to minimize estate taxes.
What Estate Taxes Apply?
When an individual dies, their estate is subject to federal estate tax if the value of the assets exceeds the exemption amount. The federal estate tax exemption is $12.06 million as of 2022, double that for married couples. If your estate’s value exceeds that amount, the excess is taxed at a sizable 40 percent.
Estate Taxes: How Can You Minimize Them?
You can lower your potential tax liability by making smart decisions about how you distribute your assets. Here are four options:
- Gifting to your beneficiaries. You may be able to reduce your taxable estate by gifting assets during your life. A practical advantage of using this technique is the possibility of offering financial assistance when your dependents may need it the most. You’ll also be able to see the rewards of your giving while still living rather than it occurring after you’ve passed.
- Setting up an irrevocable trust. You can also consider setting up a trust and placing assets into it, which may help reduce estate taxes at death. Establishing an irrevocable trust is one of the most effective strategies to minimize the tax burden.
- Gifting to charities. If you want to reduce the estate taxes your loved ones will have to pay when you pass away, gifting assets to charity can help. There will be no estate tax on your contribution if the receiver is a qualified 501(c)3 charity.
- Purchasing a life insurance policy. Life insurance plans are a great way to pay for any estate tax liability while preserving the estate and trust’s other assets.
Examine Your Options with a Seasoned Estate Tax Planning Attorney
At The Law Offices of Michael K. Lanning, APLC, we have more than 35 years of expertise assisting families in safeguarding their assets and money for future generations. Contact us at 310-820-1600 or go to our website to learn more about our services and how we can help you plan for your family’s future.
We serve West Los Angeles, Santa Monica, Pacific Palisades, Manhattan Beach, and the surrounding Los Angeles communities.