There are several ways that you can legally reduce the amount of taxes placed upon an estate if you plan carefully beforehand. The federal government has put an estate tax on any estate valued at over two million dollars. Anything over the value of two million is subject to federal taxation.
Begin with summarizing the value of all your assets. This includes everything that you own including stocks, bonds and real estate. If you have crossed the two million mark it is advisable to seek the help of an estate planner to determine how to distribute your assets to bring the value below two million.
You are allowed to give up to twelve thousand dollars a year as a gift to family members. A couple may double that amount to twenty-four thousand dollars. As part of their inheritance you may choose to give the individuals in your family a lump sum once a year to reduce your tax burden. This is a great way to help the grandchildren through college.
Charitable gifts to an organization upon the death of the estate holder can significantly reduce the estate value and carry additional tax deductions. It is a fine way to help a worthy cause and reduce what you may owe to the government.
An irrevocable life insurance trust is another option. By contributing extra funds to your life insurance policy you not only decrease the size of your estate, but you increase the value of your policy. Life insurance proceeds are generally not taxable when survivor benefits are paid.
A private annuity may also help reduce your estate value. A private annuity is where the estate holder sells an asset to a younger member of the family with the intention of being provided an income from that asset for the rest of their lives. This type of annuity needs to be prepared with the assistance of an estate attorney so that all the legal requirements are met.
Marital transfers also help in the case of sudden death without proper planning. In such a case all the assets are transferred to the spouse tax free. This is only a delay if proper estate planning is not done once the spouse takes control of the assets. If the surviving spouse does not take action the entire estate will be subject to taxation when they pass. There are several other options available to anyone who wishes to utilize the service of a professional estate planner.