4 Ways To Reduce Your Inheritance Tax Liability
Although it can be associated with a time of sadness, receiving an inheritance can be a great blessing. You may be receiving an inheritance from a relative or loved one who has recently passed. On the other hand, you may be planning your own estate and making arrangements for the inheritance your loved ones will receive.
Inheritance tax can take a large toll on the estate you wish to leave for your children and loved ones. Careful organization and estate planning with an inheritance attorney can help to minimize your inheritance tax burden.
Consult a Qualified Inheritance Attorney
The best way to reduce or avoid inheritance tax is to carefully plan your estate with an inheritance lawyer. When you plan early, you have time to make the right decisions for the future and ensure your assets are handled properly. Encourage elderly relatives, friends and loved ones to seek professional estate planning services early to achieve the best result for all. A qualified and experienced inheritance attorney can help you minimize or avoid inheritance tax, even from the early planning stage.
Use Both Tax Exemptions for Spouses
A spouse can receive a tax exemption on amounts inherited when their spouse passes, reducing the tax burden for the surviving spouse. When the remaining spouse also passes, the amount left behind may then be taxed at a higher rate for subsequent beneficiaries, resulting in a hefty tax bill.
The solution to this unfortunate situation is working with an inheritance attorney to form a living trust. A living trust allows you to take advantage of the tax exemptions for both spouses at different times, so tax is minimized. Working with an estate attorney to form trusts helps to protect both partners as well as children and other loved ones from large estate taxes.
Remove Assets From Your Estate
By giving gifts, making donations or using your assets before you pass, you can reduce the size of your estate. This in turn will also reduce the burden of tax. If you have written a will, you already know who your assets will go to. So why not transfer some of the assets early, if practical? This can help to greatly reduce the tax amount.
You can give a certain amount as a tax-free gift every year to as many people as you want. Be sure to stay under the threshold for tax-free gifts to avoid tax on the gifted amount. There are other trusts and partnerships your estate planning attorney can help you form to remove assets from your estate and reduce the estate tax burden.
Establish An Alternative Residence
Some states have inheritance tax and some states have estate tax, while other states don’t have either. If you are looking to avoid a large state tax burden on an inheritance, moving out of state can be a viable option in some cases. Many people would prefer not to relocate however, so discuss the other options with your inheritance attorney first.
When receiving or giving an inheritance, most people would prefer that the assets go to the intended recipients, and not too much is lost to tax. Discussing the options with an experienced estate attorney can help you minimize your estate or inheritance tax liability and preserve more of the assets for you and your loved ones.