3 Ways You Can Minimize Your Estate Tax

One of the primary reasons to create an estate plan is to ensure that a person’s wealth will be swiftly and effectively transferred to their heirs. The estate tax, however, can often get in the way of fulfilling this goal by reducing the amount of wealth the deceased person’s family members will receive. 

The estate tax is a federal tax levied against the net value of a decedent’s estate owned at the time of their death. In the last couple of years, the government has recognized that it may seem frustrating to have a large portion of one’s wealth subtracted at deathbed – and effectively taken away from one’s heirs – by introducing generous tax exemption levels. In 2019, just as in the previous year, all estates whose value doesn’t exceed $11.18 million will be exempt from the federal estate tax.

What can you do, however, if your estate doesn’t qualify for the exemption and you’d like to ensure that your heirs will receive as big a portion of your estate as possible? In this article, we will explore some of the proven and legitimate estate planning methods that can help you achieve that goal.

Lifetime Gifts

Most people know how they would like their wealth to be distributed among their heirs long before their passing. Therefore, they may try to start transferring portions of their property and assets while they’re still alive by the means of lifetime gifts. Each person can transfer up to $12,000 a year to their children and grandchildren without incurring any taxes on the gift. In a marriage, both spouses can decide to make a gift which increases the tax-free amount that can be gifted to $24,000. Over a few years, a person can substantially decrease the value of their property that way so that it will eventually qualify for the estate tax exemption.

Charitable Transfers

Another way to reduce the size of one’s estate is to make gifts to a charity of choice. Such donations can be made both during a person’s life and upon death. Lifetime donations to a charity, in addition to reducing the net value of an estate, can be also be claimed as a benefit towards income tax reduction. Additionally, a person can also create a Charitable Remainder Trust. This irrevocable living trust allows the creator to disperse the income to selected trust beneficiaries for a period of time and they donate the remainder of the trust to a charity of choice.

Irrevocable Trusts

Putting assets into an irrevocable trust is another way of reducing the estate tax. By creating an irrevocable trust, a person effectively transfers the ownership of the assets in the trust to another person. Some of the popular irrevocable living trusts used for the purpose of reducing the estate tax are an AB trust or an ABC trust.

Contact Luis E. Barreto For More Estate Planning Advice

Luis E. Barreto & Associates, P.A. are experienced estate administration attorneys practicing in Miami, Florida. If you’d like to obtain more information and advice with regards to reducing the size of your estate for tax purposes, or if you have other questions pertaining to estate planning, probate, guardianships, or trust administration, do not hesitate to contact us.

Written by Luis E. Barreto

Luis E. Barreto

Luis is a probate and guardianship litigator with over 23 years of experience in the field. Determination of heirs, will contests, breaches of fiduciary duty, removal of personal representatives, guardians and trustees are just some of the types of litigation he addresses. In addition, he administers non-contested estates and guardianships.