Estate planning lawyers are licensed legal professionals who specialize in the field of Estate planning and have a clear and thorough understanding of federal and individual laws of states related to the estate. An Estate planning lawyer can help you to reduce the tax burden associated with your estate, including how an estate is valued, taxed, and distributed after your death.
Estate planning lawyers help to reduce the tax burden
An Estate planning lawyer is someone who knows all federal as well as state laws and rules regarding estate and estate planning. They can help you to reduce or avoid taxes on the estate when possible with proper estate planning techniques, which include:
Marital transfers of assets to reduce the tax burden
It means that the lifetime gifts nor bequests in a will are not subjected to estate taxes when passed onto surviving spouse, given the spouse is a citizen. This method doesn’t provide exemption but defers the tax on the real estate till the death of both spouses.
Gifts will help to reduce the tax burden.
To reduce the value of the taxable estate by further decreasing state and federal taxes, each member of a married couple can make annual tax-free gifts to any number of people each year.
You can do this to a specific limit with an incursion of gift tax in 2022; it was 16000 USD for each spouse, so annually a Married couple could gift $32,000 a year without a gift tax.
Gifts to minors
Using two different methods, gifts will be exempt from taxation to minors.
- The Uniform Gifts to Minors Act (UGMA): This act allows gifts of cash and securities to underage children.
- The Uniform Transfers to Minors Act allows a minor child to be the beneficiary of a gift of money or real property. These could include real estate, royalties, patents, personal belongings, as well as cash and securities.
These types of accounts will be handled by an advisor or a Grantor. These can be used to give gifts to minors that are children up to the ages of 18 or 21, as stated by their state laws.
Set up an Irrevocable Trust or Life insurance Trust to reduce the tax burden with an estate planning lawyer
An irrevocable trust or life insurance is a financial tool with various tax benefits. A life insurance trust consists of three parts.
The grantor is insured by the life insurance policy and gets funding for the account. The beneficiaries will receive the life insurance payout and benefits after the demise of the Grantor. Finally, the trustee is named as the grantor responsible for executing, overseeing, managing, and distributing the assets in the trust.
The trustee pays monthly premiums after the insurance policy is in the trust. Later, when the Grantor passes away, the trustee will be responsible for executing the instructions written in the terms. They will also follow the account and distribute the assets accordingly. To get tax benefits, the Grantor cannot be the trustee of the trust, and thus an estate planning Lawyer can help you in choosing a suitable trustee. Trusts offer a way to reduce state and federal taxes owed on a yearly tax return during your lifetime. Thus, avoid estate taxes after your death. In addition, they give you complete control over when to distribute your inheritance and assets to your beneficiaries.
Two types of trust allow spouses to use personal exemption of taxes to the fullest extent. Spouses can use these trusts to transfer separate assets and share community property assets into a trust. The surviving spouse can use these after the death of another spouse.
The main difference between these trusts is
- The AB trust allows the surviving spouse to access the assets.
- The QTIP trust does not allow the spouse to access the assets.
Family Limited Partnership or Foundation
You can protect your assets from creditors and divorced spouses by establishing a family-limited partnership. After your demise, such a trust transfers your assets to your limited partners, usually your heirs. These limited partners get a tax break on income Estate and gift taxes.
Charitable Trusts and Charitable Transfers
Lifetime charities and gifts to charities can reduce the overall value of your estate, thus reducing your estate taxes. They can be done so that the donor retains the right to use the gifted asset or income from it till death.
An Estate planning lawyer can help you in setting up these various techniques. This is to reduce or avoid taxes on the estate when possible. It ensures you don’t make any mistakes during the whole process.