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What can you do to avoid estate taxes?

On Behalf of | Oct 4, 2017 | Probate And Estate |

A lot of people worry that a large chunk of what they’ve earned and saved over the years will end up going to the state when they die through taxes.

For most, that’s an unnecessary concern — in 2017, the gross value of someone’s estate has to be worth more than almost $5.5 million in order to be subject to estate tax at all.

Even then, personal tax exemptions allow each of your heirs to receive a portion of your estate without taxation. In 2017, that personal exemption is $5.49 million. There are even additional exemptions for property or assets that transfer directly upon your death to your spouse.

That means that if you have an estate that is worth $9 million and you choose to divide it evenly among your three children, none of them will receive an amount that reaches the taxable threshold to trigger the estate tax.

What can you do, however, if you are holding onto assets that are going to exceed that personal exemption once they’re passed on?

You have several different choices for approaching the situation:

  1. Depending on how much the difference is, you can do nothing and let the state take a small portion for taxes. For example, if your estate is worth $6 million and you have only one heir, only $510,000 would be taxable — and that amount can be whittled down even further due to things like lawyers fees, administrative costs and funeral costs.
  2. You can give the amount that exceeds the allowance for a personal exemption to the charity of your choice, which would reduce the amount that your heirs receive to below the taxable amount.
  3. You can start planning ahead and begin giving some of your estate away to your heirs while you are still alive. For example, you could prepay the college tuition for your granddaughter or take advantage of the ability to give some of your money away — tax free to the recipient — each year.

Whatever your decision, make certain that you talk to an attorney who is qualified to handle probate and estate issues like these so that you avoid complications for either yourself or your heirs.

Source: FindLaw, “Estate and Gift Tax: An Overview,” accessed Oct. 04, 2017