Why Planning for the Federal Estate Tax Is Important
One of the primary reasons to turn to an attorney when you look for estate planning help is to gain a better understanding of estate taxes and how they impact your estate – without careful planning, taxes can take a large part of your estate.
While there are estate tax and gift tax exclusions that can be taken advantage of and accounted for, in general there will be taxes on the value of your estate. The value of your estate can be determined by looking at the current value of your estate and then subtracting the following:
- administrative fees
- funeral costs and expenses
- certain debts such as your mortgage
- the value of bequests to your spouse
The value of taxable lifetime gifts that you have made will also need to be added in and accounted for in the value of your estate.
Other Taxes that Affect Your Estate
In addition to the Federal Estate Tax, your estate planning attorney will be able to help you learn more about the following taxes (explained more in the Estate Planning Institute Glossary):
- The Generation-Skipping Transfer Tax
- Capital Gains Tax
Planning Strategies That Can Reduce Taxes Charged
While it may not be possible to avoid estate taxes altogether, working with an estate planning attorney can help you to reduce the taxes charged against your estate in a number of ways.
- Credit Shelter or By Pass Trusts can be used.
- Couples can prepare a Two-Trust Estate Plan.
- A Credit Shelter Trust can be implemented
- A Qualified Terminable Interest Property (QTIP) Trust can be put into place.
- Lifetime Gifts to family and friends will allow you to distribute your assets to your heirs while you are living and can help avoid estate taxes.
- Charitable Gifts can support non-profit organizations and help to reduce the amount of your estate.
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