Most people want to make sure their assets get passed down to their heirs. After all, you have worked hard to build wealth that you can pass on to your children. Sadly, the estate tax may end up taking half of what you have. Also called the death tax, this is applied after you die and includes everything of value. You have already paid both capital gains and income taxes, why give the government more money? An experienced financial advisor, such as Don Gayhardt, can help you plan appropriately.
Know the Limits
The estate tax exemption recently went up for 2019. Now, the limit is $11.4 million per person. Therefore, every dollar under this limit is not subjected to the estate tax; however, every dollar over this amount if taxed at 50 percent. You may not think that your estate is worth this much; however, you may be surprised at what is included in the calculation of your estate. This includes investment accounts, bank accounts, your property, and even jewelry. When you truly think about what you have, this adds up quickly. There are a few ways that you can shield your assets from this tax.
Give Away Your Estate Now
If you don’t think you need every penny of your estate to survive, you can start giving away your estate before you die. This comes in the form of gifts. Annually, you can give away $15,000 tax-free to a single person. Every dollar you give away over this amount is taxed at 50 percent. While this might not sound like a lot, you can give away $15,000 per year to an unlimited number of people. Every year, you can gradually cut down on the value of your estate by passing it down before you die. Then, when you pass away, your estate will be much smaller, saving your heirs money.
Set Up a Life Insurance Trust
You should consider setting up an irrevocable life insurance trust. Life insurance is a great way for you to make sure that your family is not left in a difficult financial situation after you die. While this may come as a surprise, your life insurance benefits are included in the calculation of your estate. You can avoid having your life insurance included in the calculation of your estate by placing the benefits is an irrevocable life insurance trust. By placing your life insurance benefits in a trust, you are passing heir ownership to another person. By shifting custody of your life insurance benefits to someone else, they won’t be included in the calculation of your estate. It is better for you to do this sooner rather than later. If you die within three years of setting up the trust, your benefits may still be included in the valuation of your estate.
These are a few important examples of how you can ensure as much of your estate as possible is passed down to your heirs. Do not pay more in taxes than you owe.