Inheritance taxes can be a big financial burden for heirs – but there are ways to make sure that you don’t have to pay them. In this article, we provide you with five tax tips that will help you avoid inheritance taxes.
What are Inheritance Taxes?
Inheritance taxes are a tax levied on the estate of a deceased person. The estate is the property left behind by the deceased after all debts and expenses have been paid. The amount of inheritance taxes owed will depend on the value of the estate and whether any beneficiaries are also required to pay taxes.
There are two main types of inheritance taxes: federal inheritance tax and state inheritance tax. Federal inheritance tax is paid by the estates of deceased persons who have resided in or had their principal place of business in a U.S. state for at least five years before death, regardless of where the assets are located. State inheritance tax is typically imposed only on estates with a value greater than $5 million, but can be as high as 35% in some states.
For avoiding Inheritance Taxes, it is important to work with an experienced estate planning lawyer who can help you create an effective plan for avoiding and reducing your potential liability.
How Do They Work?
Inheritance taxes are a tax payable by the inheritors of an estate or trust. An estate is an inheritance consisting of property, money, or other assets that is passed on to someone after the death of the person who created it. A trust is a legal arrangement in which one person (the trustee) holds title to property for the benefit of another person or group of people, such as a charity. The deceased person’s spouse and children are typically considered to be part of the inheritance. In order to avoid paying inheritance taxes, you can use a number of strategies.
The first step is to identify all the property you will inherit. This includes both your own property and any property belonging to the deceased person or persons who created the trust. Next, determine how much of each type of asset you will receive. You cannot use formulas to calculate your inheritance tax liability; instead, you must use specific information about your situation and the assets included in the estate or trust. Finally, make sure you file an appropriate form with the government agency that administers estate and trust taxes.
Five Ways to Avoid Inheritance Taxes
- Review your estate plan. If you don’t have an estate plan, now is the time to create one. Make sure you include provisions for avoiding inheritance taxes.
- Don’t transfer assets to children before you die. This will reduce the amount of your estate that is subject to inheritance taxes, and may also reduce the amount of tax that your children would have to pay on those assets if they are later taxed at the lower federal income tax rates.
- Leave assets to charity or other qualified organizations instead of passing them on to your children outright. This will reduce your taxable estate, and may also reduce the amount of tax that your children would have to pay on those assets if they are later taxed at the lower federal income tax rates.
- Use a foreign trust to hold property outside your United States estate tax jurisdiction. This will allow you to avoid U.S. taxation on the property while it remains in the trust, even if you die while it is in existence. The trust can then be dissolved or disposed of without any taxes being due on its underlying assets by either party, provided all applicable legal requirements are met.
- Use marital deduction strategies to reduce taxable estate values for married couples filing separately who own jointly-owned property and make contributions to a marital deduction account (MDA). If one spouse dies before contributing all their MDA allocations, the surviving spouse can continue making contributions and claim the deductions as their own, reducing their individual taxable estate.
Conclusion
Inheritance taxes can be a significant financial burden for families, so it’s important to ensure you take the necessary steps to avoid them. Here are five tax tips that will help you stay ahead of the game:
- Make a will. This is the first and most important step in avoiding inheritance taxes – make sure your wishes are documented in case of death.
- Avoid Gift Taxes. If you don’t want money or property passed on to your heirs, consider giving it away instead through charitable donations or estate planning measures like gift splitting. These gifts will avoid any gift taxes that may apply!
- Pay Estate Tax On Large Gifts And Inherited Property. If you give away more than $11 million in assets during your lifetime, then your heirs will have to pay estate tax on those assets when you die (unless they qualify for an exemption). This means that if you’re planning on leaving a large sum of money to your children, it’s important to start thinking about estate planning now!
- Make Sure You Are Insuring Your Property Against Losses Caused By The Death Of A Family Member Or Friend. Protecting your assets against losses is always a smart move – especially if there is an upcoming inheritance involved! Consider getting life insurance or purchasing property insurance to cover potential damages from someone else’s death.
I hope these tips have helped lay out some basics regarding inheritance taxes and given you some ideas on how best to avoid them altogether! Let us know if there are any other specific questions or concerns you have about this topic – we would be happy to help out!