Estate Tax is an entire federal Law Itself. Maybe it is an unknown concept to you and You came to know little a bit while you are starting to plan your estate strategies. In Short, what you have built in your entire life and what you will be handed over to your closest ones, will reflect on everything. Many of you think about how to reduce estate taxes to prevent your wealth and I got many questions about this single topic. So, in this article, I will be sharing my 6 best estate planning Strategies to reduce Estate Taxes.
Hope, You will be learning great lessons.
You Can Also Read: how you can become a real estate agent in Australia
What Is Estate Tax
Estate tax or we can say successor tax or death tax is a form of Tax that applies at the time of transferring the estate of a deceased person to his beneficiary members. The estate tax varies on the wealth value of his assets, and property and is typically paid by the estate before the assets are distributed to their beneficiaries.
This Tax is typically accessed at the state and federal levels and the total tax calculation rates vary on the jurisdiction stats of the United States. Although, not all the states in America have availed of this tax System.
When The Property value threshold will be over $11.9 million dollars as of 2021, then the tax rate will be charged from 18% to 40% depending on the estate law.
Some States also revealed their estate Tax about their threshold and the tax rates. but please keep in mind that the threshold amount and the tax rate limitations and the rules usually change over the years. So, it will be very safe for you if you can consult your financial advisor, or you can hire one. So that, you will be updated on the law and orders.
The Actual Estate Tax Payer
Basically, the beneficiary is liable to pay the tax amount on behalf of the estate. Although, all the states are not on the list of Estate Tax rules.
As per the latest law by 2021, The estate value of $11.7 million or more than the amount is responsible to pay the estate Tax. Keeping in mind, the amount exceeding the estate value threshold will be applicable for the Estate Tax.
Also, the fair market value of the estate is accessible in this case, not the purchase price of the estates, as per the IRS.
6 Best Estate Planning Strategies To Reduce Estate Taxes
Estate tax planning is a process to minimize the tax liability for your heirs and beneficiaries. Here are the best estate planning strategies to reduce Estate Taxes.
#1. Irrevocable Trust
Building irrevocable trusts can help you to minimize your estate value of yours. Now, we have a lot of options to establish irrevocable trusts and still have control of the assets. This kind of trust has separate rules to meet your goals with your assets. So that, you take the benefits. it is one of the best Estate Planning Strategies To Reduce Estate Taxes
#2. Reduce your Estate Value
Everybody wants to maximize their Estate value, but in this case, we will have to go in the opposite direction in order to reduce our Estate value in order to lower the estate value than the estate threshold. So, your beneficiaries will not be in the eyes of the Government to pay estate taxes.
#3. Charitable Gifts
Make Charitable distributions in terms of Gifts can also help you in these cases. it will reduce the value of your estate. In the end, you help the world by doing something from your end. But make sure, the total annual gift allowance is around $15,000. So, don’t cross the gift allowance threshold. Otherwise, you will have to pay the taxes.
#4. Make a Life Insurance Trust
Building a charitable trust is a good option for you but there is another way if you place your life insurance policies under an irrevocable trust. It can help your life insurance policy out of your taxable assets. But one thing to take care, if you involve your life insurance policy under irrevocable trust, then make a strong plan and strategies. This plan will allow you to pay premiums for one or more insurance policies such as term policy and life policy.
One thing to make it clear to you, as you make your life insurance to an irrevocable trust, though the funds are taxable for the financial year when you die, it will be regarded as a part of your life insurance and it will not be added to your estate property.
Yeah, this is a great advantage of doing life insurance under irrevocable trust.
#5. Partnership Businesses (Involvement Of Your Family)
family Limited Partnerships or FLPs are one of the best strategies to reduce estate tax and this is legal. This policy allows you to transfer your funds to any of your partners who are limited to the business.
One thing to keep in mind is that the business should be limited to the family holders.
In terms of reducing the tax, this way can help you to reduce taxes on your estate, and it ensures the continuity of the business and it limits the family partners.
From the perspective of partnership, there are contributions of each partner in a family-limited business. So, this is relatable if some shares of the business are gifted to other family contributors. Though it is a family business, so it will only be sold to the family members who are in the business.
#6. Change Your State
Although, Estate Tax system does not exist in most USA states, unfortunately, if you are in a state where this law is applicable, then you can consider changing your state in order to avoid the estate Tax. But be aware, If you have multiple properties in various states, then it can make so much of a problem for you.
So, these are the 6 important tips from my side of knowledge that will make sure your estate planning strategies reduce your estate taxes.