Wealth Transfer and Inheritance Tax Avoidance
How Estate Planning Can Help to Minimize and Simplify Taxes for Heirs
Senior Adviser Staff | Dec 3, 2021, 12:19 EST
You have likely heard the word estate tax and may think it sounds intimidating, but do you know what it actually means? An estate tax is imposed by the federal government on the transfer of property at death, but only if the assets are valued at over $11.7 million per person. Fewer than 1% of the population will actually pay federal estate tax. Keep in mind, taxes can vary from state to state and some states have a lower threshold.
Wealth Transfer Taxes To Consider
- Estate Tax
- Gift Tax
- Generation-Skipping Tax
- State Inheritance Tax
Estate taxes
Estate taxes can be imposed at the state or federal level. Many states match the exemption of $11.7 million, but there are some states that have a much lower threshold. As an example, Oregon has an exemption of $1 million per person. A local attorney will be able to determine if your estate may face this tax. The rate of the estate tax can be as high as 40%.
Gift Tax
A Gift Tax applies when you give assets to an individual during your lifetime. However, you can give any individual up to $15,000 ($30,000 if you’re married and filing jointly) without it being taxed. You can give up to $11.7 million during your lifetime.
Generation-Skipping Transfer Tax
The Generation-Skipping transfer tax is imposed if an asset is transferred to someone who is 39 years younger. The design of this tax was to eliminate individuals from not being subject to estate taxes each time something was transferred grandparent to parent to child.
State Inheritance Tax
State Inheritance Tax is imposed on certain heirs that would inherit the assets. Most states do not have an inheritance tax, but check with your local attorney for the current tax laws. A spouse is usually exempt from state inheritance tax. More distant relatives or those who are not related to the deceased typically face the highest inheritance tax rates.
How To Minimize Estate Taxes
For the majority of families, you will never need to worry about estate taxes. If you do, here are a few ways to keep your estate below the $11.7 million thresholds.
Give Gifts
You can give a person up to $15,000 tax-free ($30,000 if you’re married and filing jointly) and you can give up to $11.7 million of your wealth as gifts before getting hit with the gift tax.
Set up a Trust
When you move assets into a trust, they are typically no longer considered part of your assets. A life insurance policy is considered part of your assets, so moving it to a trust can eliminate it from your total assets. However, if you die within three years of making the transfer, your life insurance is still considered part of your taxable estate.
Make Charitable Donations
If you leave assets to a charitable organization, they can be deducted from your total assets.
If you’re not afraid of running out of money, spend it.
Wealth Transfer and Inheritance Tax Avoidance Summary
Although your estate may not be subject to these specific taxes, discuss all the costs that your estate may incur when it transitions from you to your loved ones. A local attorney will be able to help you understand the wealth transfer taxes in your state as well as the court fees and costs associated with your assets. For more help, enter your information here and one of our highly trained staff at SAO will reach out to answer your difficult tax questions.
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