People say that the only two certainties in life are death and taxes. While the government might be inefficient in certain areas, they certainly know how to get their money. Many people are unaware of the estate tax and others call it the “death tax.” For people with an estate over a threshold value, every dollar over this threshold value is taxed heavily when the owner of the state passes away.
Nobody wants to see their hard-earned funds disappear into the pockets of the government and most would rather watch this money be inherited by their loved ones. To avoid losing this money to the estate tax, there are a few important tips to follow.
First, remember that property values often have an alternate valuation date. For most issues regarding the estate tax, the assets are valued as of the date of death; however, there are some cases where the executor can select an alternate valuation date and value the property based on its value at a different date. This can have significant implications by possibly decreasing the valuation of the property. If this value decreases, more of the property will wind up with the beneficiaries of the estate and less will head towards the coffers of the government.
Next, everyone who is worried about the estate tax should consider placing their assets into a trust. For people expecting to pass on a significant sum of money to their children or grandchildren, set up a trust. A trust allows the owners to pass their assets down to their loved ones after they die without having to go through probate court. Probate court is expensive and should be avoided if possible. While trusts do have some similarities to wills, they avoid probate court and are a great way for people to avoid losing their estate to the estate tax. There are many different types of trusts which people should check out the rest of the blog to learn more about.
In addition, people should consider giving away some of their money. Yes, this might seem counter-intuitive; however, if the money is going to be given away after death anyways, people should simply start giving away their money to their beneficiaries before they die, especially if people have far more money than they will ever spend during their life. Over the years, the government has caught on to this strategy and instituted something called the gift tax; however, this is not an absolute tax and people should simply read the law to learn how to give their money away without paying a similar tax on their gifts. It appears that people cannot even give their money away without having the government involved.
The estate tax is an often overlooked law during the estate planning process. People need to understand the tax implications regarding their estate and start planning ahead to minimize the amount of money that is lost during the process.