How to Avoid Paying Tax on Your Estate

property-taxAfter a person dies, if he or she has an estate worth more than $5.34 million, the beneficiaries of the estate will be required to pay estate taxes on however much the individual’s estate exceeds this amount. Currently, this rate is set at 40% in the United States, meaning that if someone’s estate is worth $6.34 million and the owner dies, the beneficiaries will have to pay taxes on the $1 million over the exempted $5.34 million. This would result in $400,000 in taxes, which is a significant amount.

For some, avoiding this tax can be as simple as leaving all of one’s assets to a surviving spouse, which would avoid estate taxes altogether. However, once the surviving spouse also passes away, and he or she now has all of the assets in his or her name, the taxes could again result in a substantial amount. The full amount of both individuals’ exemptions ($10.68 million) can be used, but if the worth of the deceased couple exceeds this, survivors may be required to pay estate taxes. However, there are some ways that an individual can avoid estate taxes, including the following:

  • Gift giving
  • Paying for medical treatment or higher education
  • Giving money to charity
  • Establishing a life insurance trust
  • Eliminating assets from an estate

Here is a closer look at a few of the most prominent methods:

Gift Giving

Any individual can give a gift of $14,000 per year to another person, free from taxation. A benefactor can give this amount to any number of individuals, although if he or she exceeds this amount, taxes will follow. Ultimately, gift giving serves two purposes:

  1. It removes assets from an estate, which will lower estate taxes
  2. It affords an opportunity for the benefactor to preemptively give gifts to loved ones, free from taxation

Also, note that any money given for the paying of higher education and medical bills cannot be taxed, regardless of the amount of money spent. The same is true for money given to charities.

Reducing Size of Estate

Most methods for avoiding estate taxes have less to do with elimination than mitigation. For example, a person can set up a Qualified Personal Residence Trust (QPRT), which allows an individual to remove his or her house from the estate. The individual still lives there, but after the trust term runs up (usually 10-15 years), the house will be transferred to the benefactors of the trust. While this will not eliminate estate taxes on the house, it does effectively lower them, since gifts given through trusts have a lower tax rate than assets simply inherited.

Get Some Help

Beyond QPRTs, there are a number of trusts and partnerships that you can use to reduce the size of an estate, such as a Family Limited Partnership (FLP) and/or a life insurance trust. There are, in fact, many ways that an individual can help lessen their estate taxes. If you need help planning your estate, contact Andrew M. Lamkin and he will help you navigate the process. You can reach the Law Office of Andrew M. Lamkin by calling 516-615-0625. Mr. Lamkin will be happy to provide you with an initial consultation, free of charge.

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