Taxes are just a part of life. They are also a part of death. Yes, estate taxes can greatly impact your estate as the taxation rate is significant for those estates that fall above the federal estate tax exemption amount. Right now, this exemption amount is quite high. It sits at $12.92 million for 2023. Considering the fact that many people might not have to worry about having an estate that exceeds this value and California does not have a state estate tax to worry about, the estate tax may be off your radar.
It should be noted, however, that the federal estate tax could significantly drop at some time in the future. So, if you have an estate of significant value, you should certainly consider taking steps to protect the value of your estate from the reach of federal estate taxes. Here are some tips you can use in planning for estate tax, or, better yet, planning to avoid estate taxes.
How to Plan for Estate Taxes
Many of us make an estate plan to protect the transfer of our legacy on to those we hold dear. If you are planning to leave your loved ones money or other financial resources in your estate plan, you may want to consider making a lifetime gift to them.
Lifetime Gifts
Lifetime gifts to your family have a number of benefits. For starters, you will be alive to enjoy the happiness and warm feelings that can come with giving generous gifts to your loved ones. An added benefit is that giving such gifts also removes value from your taxable estate. In 2023, you are able to gift one person up to $17,000 and $34,000 if you are married and filing jointly.
Furthermore, there is no limit to the number of people you can make such tax-exempt gifts to. For 2023, the lifetime limit on the number of tax-free gifts you can gives is $12.92 million. This means that you can potentially remove up to $12.92 million from your taxable estate in tax-free gift giving.
Irrevocable Life Insurance
You may also want to think about setting up an irrevocable life insurance trust as you plan for estate tax avoidance. Life insurance is a great idea if you want to provide financial support to your family after you die. And, while life insurance proceeds are not usually taxable, the proceeds from a life insurance policy could be included into your taxable estate after you pass.
An irrevocable life insurance can help you avoid this possibility. You transfer your life insurance policy into the trust and then the death benefits would not be included in your estate.
Charitable Gifts
Charitable giving is also a good way to avoid estate tax liability. If you have a cause near and dear to your heart, charitable giving is a great way to go. This can be effectively accomplished through establishing a charitable trust. Charitable lead trusts and charitable remainder trusts are the two types of trusts used for charitable giving.
These trusts remove wealth from your taxable estate as well as allowing you to reap additional tax breaks due to the charitable giving. All of this and you get the big bonus of supporting a cause that is important to you. It’s a win-win situation.
Estate Planning Attorney
For more tips on developing a robust, comprehensive estate plan, you can count on the attorneys at BoyesLegal, APC. Contact us today.