Poor estate planning could chip away at your legacy and reduce the amount of money that goes to your family. An important part of any estate plan focuses on reducing tax payments.
Knowing the best strategies allows you to pass on your hard-earned money to your heirs.
The value of a sound plan
Whether you have a large estate or a moderate one, the U.S. News and World Report touts the benefits of a current estate plan. While estates with less than $11.58 million in assets should not have to pay any federal taxes, other considerations come into play such as state and local estate taxes and income taxes. A sound plan pays attention to these five tools:
- A current will
- Beneficiary designations
- Roth conversions for traditional retirement accounts
Without a will, your assets could wind up in probate court. This could result in extra costs to your estate, Also, you should revisit your will regularly to make adjustments as tax laws change and personal circumstances dictate.
The role of gifts
While you are alive, you can give money to your heirs. Currently, the IRS allows an individual to give up to $15,000 a year to recipients tax-free. This is an effective way to reduce the taxable amount of an estate. It also allows you to enjoy the gifting process while you are alive, as well as helping out family members.
Charitable donations also can play a role in reducing your estate’s tax burden. Setting up a donor-advised fund gives you a tax deduction right away, and then allows charitable contributions over time. Knowing the right strategies for preserving wealth enables you to make the most of your money.