An old saying goes, “there are two certainties in life – death and taxes.” Most people assume that taxes end after death, but the truth is that that the tax man hits a deceased person’s estate hard. Federal estate taxes typically amount to 45 to 55 percent of an estate’s value. The family or beneficiaries must pay the taxes in cash and within nine months of a person’s death. Because few Minnesota estates have the cash to pay these hefty fines, families are often forced to liquidate assets. If you do not want your family to have to liquidate assets to pay your estate’s taxes, there are a few steps you can take to reduce or even eliminate estate taxes.
According to U.S. News Money, one sure way in which you can eliminate or reduce the taxes on your estate is to give your wealth away before you die. Federal law allows each individual to give up to $14,000 annually to as many people as they choose without consequence. You may even give your wealth away to charitable organizations, donations that your estate may be able to claim as tax deductions.
Another trick you can utilize is to use your exemptions early for appreciating assets. The government allows each individual a $5.49 million lifetime exemption from estate taxes. Most estates claim this exemption at the time of a testator’s death, but you can claim your exemption at any time you want. You should claim the exemption early if you own a quickly appreciating asset, or that experts expect will appreciate significantly in coming years. For instance, if you own an asset that is currently worth $5 million but that you expect to be worth $15 million by the time of your death, give it away now.
The most surefire way to avoid estate taxes is to create a trust. There are several types of trusts available, so you should consult with both a financial planner and an estate planning attorney if developing a trust is something you want to do.
If you have a significant net worth, you may want to consider purchasing life insurance. Though a life insurance policy cannot help you avoid estate taxes, it can help foot the bill when you are gone.
The information in this article should not be construed as legal advice. It is for purely educational purposes.