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Can you reduce the amount of estate tax your loved ones will pay?

On Behalf of | Oct 19, 2022 | Blog, Estate Planning |

The U.S. government takes a fair amount of taxes from an individual’s remaining assets after their passing. However, there are several laws that provide exemption limits to help with the distribution of inheritance to heirs.

Because it is impossible to predict what laws may impact your beneficiaries down the road, it is important to begin estate planning early. These tips can help you minimize or avoid the federal estate tax burden.

Use a life insurance benefit

Life insurance policies are typically bought long before your passing, and by investing in a policy early on, you can use the benefit to cover what estate taxes may accrue. While it does not alleviate the tax burden, it does provide funds to cover it.

Make gifts out of your assets

You can also reduce your estate tax liability by transferring or spending your assets before your death. Gifting assets to family members is also an option, in amounts of $15,000 per donor and recipient tax-free.

Create an irrevocable life insurance trust

When an insurance policy is a trust, the trustee of the account pays the premiums. When the insured individual dies, the trustee collects the money from the trust, pays any death and funeral expenses and distributes the funds to any beneficiaries on the account.

Set up a family limited partnership

This arrangement allows you to manage your investments while alive. Assets in this trust become the property of the limited partners, usually the heirs. The partners also receive a tax break on the estate or gift taxes.

Planning for the future is the way to avoid estate tax surprises. There are several ways to reduce the tax liability for your beneficiaries.

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