By Jay Greene, Esq., CPA–
Estate taxes, while an important part of our financial landscape, can sometimes take a hefty bite out of the wealth we’ve worked so hard to accumulate over the years. But fear not. There are smart strategies and tips that can help you navigate these waters and potentially reduce your estate tax burden. Let’s dive in.
Understanding Estate Taxes
Estate taxes, in essence, are like a parting gift from the government to your heirs. These taxes can substantially reduce the wealth you pass on. It’s important to grasp what they are, the thresholds they apply to, and how they impact your estate. I recently worked with a client who was surprised to learn that their estate might be subject to estate taxes. Understanding these nuances is a crucial first step.
Estate Planning Essentials
Before we delve into specific strategies, it’s important to ensure you have a solid estate plan in place. This includes having a will and possibly setting up trusts. A well-structured estate plan not only ensures your wishes are carried out but also can be a powerful tool for reducing estate taxes. One client I worked with had a sizable estate but hadn’t updated their trust in years. This resulted in unintended tax consequences for their heirs. Regularly reviewing and updating your estate plan is essential.
Gifting Strategies
Gifting can be a great way to minimize estate taxes. The IRS allows for an annual gift tax exclusion, which means you can gift a certain amount to an individual tax-free each year. I’ve seen this used effectively by clients who wanted to pass on some of their wealth to their heirs while they were still alive. A key takeaway here is that smart gifting can significantly reduce your taxable estate. Important: elevated gift tax exclusions will sunset after 2025. What this means is that as of January 21, 2026, the current lifetime estate and gift tax exemption of $12.92 million for 2023 will be cut in half. Families that face estate tax liability in 2026 might benefit from transferring assets and their appreciation out of their estate sooner rather than later. Contact our office to learn more if applicable to your family.
Charitable Giving
Don’t underestimate the power of charitable giving. It not only supports causes you care about but also can help reduce your estate tax burden. One client I worked with was passionate about a local charity and decided to set up a charitable trust. This not only allowed them to support their chosen cause but also helped reduce their estate’s taxable value.
Use of Qualified Plans
Retirement accounts and IRAs can be a significant part of an estate. Proper planning can help minimize the tax impact when these assets are inherited. I had a client who wanted to ensure that their children wouldn’t be hit with a hefty tax bill upon inheriting their IRA. We set up a strategy to help mitigate this, giving their children more financial security.
Leveraging Life Insurance
Life insurance policies can play a dual role in estate planning. They provide financial security to your loved ones and can also be used strategically to offset estate taxes. I recently worked with a family who used an irrevocable life insurance trust (ILIT) to great effect, ensuring that their estate would be passed on as they intended.
State-Specific Considerations
It’s important to remember that state estate taxes can vary widely. Some states have their own estate tax laws, which can impact your overall tax liability. Be sure to consider these state-specific factors in your estate planning strategy.
Working with Estate Planning Professionals
Lastly, don’t go it alone. Estate tax planning can be complex, and the laws are subject to change. Professionals like estate planning attorneys, financial advisors, and accountants can help you navigate this terrain effectively. In my experience, clients who seek professional guidance often end up with more tax-efficient estate plans.
Minimizing estate taxes as a senior is not just about keeping more of your hard-earned assets; it’s also about ensuring your legacy benefits as you intended. By understanding the basics, having a sound estate plan, and leveraging smart strategies, you can potentially reduce the impact of estate taxes and leave a lasting financial legacy. Remember, it’s never too late to start planning for the future. If you are looking for help with your own estate planning needs, or would like to discuss how we can help your loved ones with their plans, please feel free to contact us at obed@greenelawfirm.com or call us at 415-905-0215. We look forward to hearing from you!
Statements In Compliance with California Rules of Professional Conduct: The materials in this article have been prepared by Attorney Jay Greene for educational purposes only and are not legal advice. This information does not create an attorney-client relationship. Individuals should consult with an estate planning and elder law attorney for up-to-date information for their individual plans.
Jay Greene, Attorney, CPA, is the founder of Greene Estate, Probate, & Elder Law Firm based in San Francisco, and is focused on helping LGBT individuals, couples, and families plan for their future, protect their assets, and preserve their wealth. For more information and to schedule an assessment, visit: https://assetprotectionbayarea.com/
Trust Essentials
Published on September 21, 2023
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