Chances are, you worked hard for most of your life so that you could leave a lasting legacy behind for the people you love, but estate taxes can eat up a good portion of the amount you hope to leave behind. There are, however, certain things you can do now to reduce your estate tax burden and improve the chances that your hard-earned money goes to the people and causes you care most about.
Just what types of steps might you consider taking to reduce the amount of taxes assessed against your estate?
Step 1: Place assets into trusts
One of the most effective tactics for preserving your wealth by lowering estate tax involves placing assets you have into trusts. In doing so, these assets become the direct property of your trustee, rather than you, which means they will not factor into the overall value of your estate. Therefore, you are effectively reducing your tax burden and leaving that much more behind for the people and things that matter to you.
Step 2: Start giving away wealth now
If you have a pretty good idea of how you would like to distribute your estate after your passing, it may prove advantageous for you to start giving away assets and wealth now. For example, if you have two children, and you plan to leave much of your legacy behind to them, leaving some of your wealth behind now in, say, annual increments, can reduce the overall value of your estate, and in doing so, reduce your estate tax burden.
Step 3: Consider securing additional life insurance
If finances allow, it may serve you well to buy an extra life insurance policy to help cover the amount lost to estate taxes. The value of the policy does not go through the probate process – instead, it goes directly to your children or other beneficiaries. It is imperative, though, that you purchase the new policy through an irrevocable trust so that you avoid adding to the value of your estate.
While these methods are unlikely to eliminate your estate tax obligations entirely, they can prove highly effective at lowering the amount of tax assessed against your estate.