You have worked hard to build your fortune and minimizing the portion that will go to the IRS is possible during your lifetime with smart estate planning. While there are a number of tax-avoidance strategies in estate planning, here we will discuss two that may be able to save you and your heirs a large sum in the long run.
Gift Assets
Giving away assets to family members and charitable organizations before you pass away can minimize estate taxes. Gifts that are below the annual exclusion rate, used to pay for tuition and medical costs, made to a spouse or a political organization will avoid gift taxes. As of 2018, the current annual exclusion rate for gift taxes is $15,000 per individual and $30,000 per couple. Donations given to charitable organizations are also tax-deductible.
However, there is a lifetime exemption on gift taxes. In 2018, the lifetime exemption for both gift and estate taxes increased twofold to $11,180,000. Any gifts you make that exceed your annual exemptions are deducted from your lifetime exemptions. This means that you may never pay gift taxes if you do not exceed your lifetime exemption. In addition, your estate will not be taxed if it is under $11,180,000 until 2025. If your estate is greater than $11.8 million, gifting assets can help to avoid the death tax.
Keep in mind that exemptions change with legislation and it can be a good idea to speak with an experienced estate planning attorney before gifting any assets.
Consider Family Limited Partnerships
Does your family co-own a business? Do you have family-owned property? If so, you may want to look into Family Limited Partnerships. These allow you to designate family members as limited partners and yourself as a general partner. A limited partnership means that they will not be able to make any decisions, but they will assume ownership of some of the assets. Adding limited partnerships will minimize your estate and, subsequently, estate taxes.
Sizeable estates do not have to mean sizeable death taxes. Begin planning as early as possible and consult with a well-seasoned attorney to protect your heirs’ inheritance.