Minimizing Estate Tax Liability: 3 Essential Tips

December 22, 2014
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How much of your estate will end up in government treasuries? It can be difficult to predict. Better plan for it.

Taxes – of all kinds – are nothing if not complex. Estate tax laws are not just complex – they’re quite volatile. But hoping that estate tax laws will change in your favor is a bet with very long odds.

So it’s essential that you do some advance planning to preserve your hard-earned wealth — and to ensure that it will be distributed as you wish. Here are three time-tested basic tips to help you think about your estate planning.

Start Estate Planning as Early as Possible

Minimizing Estate Tax Liability image 1Everyone recognizes that retirement planning works best if started long before retirement, but early estate planning is often neglected. With a plan in place as your wealth grows, you’ll be able to exert maximum control. Life’s uncertain, and unexpected events can easily subject your estate to high tax rates and deprive your heirs of benefits.

How do you know whether you need estate planning? As soon as it becomes clear that your net worth will exceed the federal estate tax exclusion amount ($5.43 million for 2015), you should begin serious estate planning. (That exemption follows inflation.)

In addition, legislation can alter estate tax laws at any time in the future. So be proactive early, and keep your ear to the ground. Changes in the estate tax code are usually fairly big events when they occur, so stay abreast of financial news.

Don’t Approach Estate Planning on Your Own

Strategies to minimize eventual estate taxes can be complicated. Structuring available methods — from gift distributions and trusts to insurance plans and business succession — is far from simple. Mistakes can destroy the effectiveness of your plan. Consult a trusted financial planning professional and your attorney to ensure that every aspect of your plan meets current standards and potential changes.

Again, don’t assume that a plan that works today will work in the future. The volatility of estate tax laws is a constant threat to estate planning. Working with your financial professionals, review your strategies annually (at least) and adjust them as needed. Life changes and other variables will also affect your strategies.

Make Maximum Use of Early Estate Distributions

Minimizing Estate Tax Liability image 2Effective estate planning can take advantage of a broad range of early distributions of wealth. Through gifts, you can minimize estate taxes while benefiting heirs and others today. In 2015, you can give anyone up to $14,000 annually in cash or property without incurring additional tax liability. (That amount is inflation-indexed.)

Consider, too, that:

  • Gifts to defray educational or medical expenses, when paid directly to institutions, are exempt.
  • Structuring your income with your spouse in mind will increase your estate tax exclusion.
  • Charitable donations, too, let you distribute wealth without estate tax liability.
  • Trust arrangements and other gifts can also reduce estate taxes.

A Well-Planned Estate Keeps You in Control

Don’t leave your estate to chance. Through effective professional planning well in advance of the inevitable, your wealth will provide maximum benefits to your heirs instead of being lost through taxation. Take control of your estate today to protect your legacy for tomorrow.

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