Estate taxes are taxes on property transfers after a person dies. The estate tax takes everything you own or certain interests into account after death. It doesn’t matter what you paid on the items in your estate — what matters is the fair market value. The total of all of your assets is your gross estate. Certain deductions can be taken from the gross estate. Once you make your deductions, you have your taxable estate.
You may be wondering how to avoid or reduce your estate tax.
First and foremost, exemptions are the most important and easiest way to reduce an estate tax. If you have a spouse, it helps to know that you can leave him or her an unlimited amount after you die. There is no estate tax on the assets that you leave your surviving spouse. One problem with the spouse exemption is that after the second spouse dies, the estate tax is higher due to the combined assets. The best way to avoid higher taxes is to split the estate into two trusts. This way both spouses can use the exemption.
If you want to reduce your estate taxes, you may consider removing assets from your estate. On one hand, you could use your assets. Enjoy your money! Another idea is to give your assets away before your death. Not only does this provide you with a means to reduce your estate taxes, but it also allows you to see your loved one’s faces when you offer them the gift. You may want to consider gifting any assets that are going to appreciate over time. These can add to the estate tax.
A living trust provides you with a means to avoid an estate tax. If you choose to establish a living trust, then you may still have to pay a gift tax. In general, you do not receive tax advantages with a living trust and hence you would not need to pay the estate tax.
When it comes to estate taxes, most want to avoid the high costs that they might owe. There are ways that you can reduce your estate tax bill. The best way to find out what you can do to lessen the burden of an estate tax is to talk with an attorney. He or she can offer valuable advice. To find out how to reduce taxes, consult with a wills and trusts lawyer, like a wills and trusts lawyer in Sacramento, CA, today.
Thanks to Yee Law Group, PC for their insight into how to reduce estate taxes.