Around this time every year, we often hear from clients who have a variety of estate planning questions that all boil down to one simple query: What can we do to limit our taxes? While we aren’t accountants or financial planners, we are experienced estate lawyers who know a few things about creatively planning how to best handle your wealth so that you, your loved ones or your favorite charities benefit—not the government.
Short-Term Options to Lower Your Tax Payments
Here are a few straightforward ways to lower your total taxable estate each year:
- Gifting money: Each year, you can gift up to $14,000 to any given individual (or $28,000 if you and your spouse give a gift together). This money transfers tax-free for you and the recipient.
- Paying education and medical expenses: You can reduce your total taxable estate by paying someone else’s medical bills and educational expenses. There is no limit on these expenses as long as you make payments directly to the medical or educational institute.
- Donating to charity: Charitable donations are a wonderful way to lower the overall value of your own estate while also helping improve the situation of a worthwhile charity. You can take this one step further by donating to charitable gift funds or community foundations.
Longer-Term Options to Limit Your Estate Tax Obligations
If you are interested in making a greater impact on your estate to better your family’s situation when you pass, then consider these creative estate planning tools:
- Move your life insurance policies into an irrevocable life insurance trust. The greatest benefit of an irrevocable life insurance trust (ILIT) is that it removes any death benefits from the taxable estate. If you do not yet have life insurance, set up the ILIT first and then have the trustee purchase the insurance on your behalf.
- Transfer your home into a qualified personal residence trust. The qualified personal resident trust (QPRT) can be a smart way to remove your home out of your taxable state. It is limited in duration—and should you outlive that duration, the home can once again be included in your estate for tax purposes.
- Set up a charitable lead trust or charitable remainder trust. These tools allow you to transfer significant assets into a trust, whereby you lower your taxable income and the charity of your choice benefits.
Curious to Know More? Talk to Your Estate Planning Attorney.
If you have any questions trusts, gifts or any other creative tax-avoidance tool, reach out to your estate planning attorney. He or she can walk you through how these tools work in conjunction with your will and other estate planning documents to lower your taxable estate.