You’ve worked hard all your life and accumulated a nice house, bank accounts, and valuable personal property. And you’d like as much of this as possible to go to your family, right? Most people would rather process the payment to their beneficiary. And not Uncle Sam. Unless you plan carefully, though, some of the money you want to leave your loved ones may go straight to the government. So, what can you do to prevent this from happening?
What Kind Of Taxes Will Affect My Estate?
The IRS collects taxes from estates worth more than their exemption limit. Currently, the limit is $5.34 million, but is linked to inflation. The taxes owed can be substantial. In 2006, Arizona eliminated its inheritance tax so that’s one less tax for Arizona estates to worry about.
If your estate is less than the current IRS exemption, does that mean your beneficiary will be spared from the payment for any taxes?
Not necessarily. People who inherit assets or money may owe taxes depending on the amount they receive, their current tax status, where they live, and whether the inheritance is an income tax deferred account like a 401K or IRA.
How Can I Lower My Tax Bill?
If your estate is worth more than the exemption limit set by the IRS, there are several ways you can do in avoiding high cost of the taxes due.
- Gifts. Giving money away to family members during your lifetime reduces the value of your estate, possibly enough to get it below the exemption limit. Some restrictions apply, including the amount you can gift every year.
- Trusts. Consider moving some of your assets to a trust. Certain types of trusts can lower your beneficiaries’ taxes. Knowing which trust to use and what assets to move to the trust can be complicated. Ask the advice of an expert.
- Charitable Donations. Gifts to charities through a trust is one way to reduce the value of your estate. Depending on their situation, some people may buy life insurance policies to replace the value of the donations and then name their heirs as beneficiaries to the policy.
- Family Limited Partnership. If you have a family-owned business, consider setting up a family limited partnership. You can still control the business as general partner, with your children, for example, serving as limited partners.
Careful Estate Planning Is The Key
Make sure your property passes to your beneficiaries in as pain-free way as possible. With some careful planning and the advice of an expert attorney, you can keep most of your money in the family.
A Qualified Arizona Attorney Can Help
To discuss your estate planning concerns, call us at (480) 418-8448 or check out one of our free seminars. Located in Chandler, we assist clients throughout Arizona including Gilbert, Sun Lakes, Mesa, Phoenix, Scottsdale, Apache Junction and Tempe.