09 Oct TAX AVOIDANCE TECHNIQUES: Justin Crain, Partner
Much has been said and written about avoiding federal estate tax and other taxes at death. The increase in the estate tax exemption to $5,490,000 will exclude many estates from being subject to the tax. However, for those families that are still subject to the estate tax, the following are popular estate tax planning tools:
Prepare Your will or Trust Properly
For many people (especially married couples), having your Last Will and Testament or Revocable Living Trust conform to the estate tax laws will avoid estate tax completely. Properly prepared estate planning legal documents allow married couples to exempt up to $10,980,000 from estate tax.
Make Annual Gifts
You can give away $14,000 to as many people as you want, every year, to reduce your estate. If you have four children and eight grandchildren, you could (if you wanted to) reduce your taxable estate by $168,000 each year by making $14,000 gifts to each of them.
Use Life Insurance to Pay Estate Tax
This is a tool made popular by the life insurance industry. You are not reducing your estate tax by purchasing life insurance, but you are making gifts to children or others and the gifted money is used to purchase life insurance on your life that might pay the estate tax liability when you die.
Avoid Capital Gains Tax
Don’t put appreciated assets in your kids’ names without first considering the capital gains tax effect. Your heirs will enjoy the step-up in basis only if they inherit assets from you when you die, not if you donate assets to them during your lifetime.
Make Gifts to Charity
What you leave to a qualified charity completely avoids estate tax. If Bill Gates and his wife leave their entire estate to their charitable foundation (or any other charity) no estate tax will be due at their deaths. There are many ways to donate or bequeath money to charity – some simple and some complex.
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