With careful planning, you can partially or completely reduce your estate tax bill.
You did well in business.
Your assets exceed the federal estate tax threshold or the threshold for your own state estate tax.
What can you do to keep the most of your wealth in the hands of your own family?
According to a recent nj.com article titled “Last minute help to avoid estate tax,” you first need to know the rules within your own state.
For example, New Jersey had a $2 million estate tax threshold.
This is less than half of the federal threshold presently at $2.49 million (increasing to $5.6 million in 2018).
You will need to do advanced planning to bring your taxable estate under the $2 million mark.
If you give gifts while you are living, not only will you be knowing where its going, but you will reduce your taxable estate.
This method could negatively affect income taxes for the recipient, particularly capital gains taxes if you give an "appreciated" asset.
If the recipient were to receive the same asset as an heir to your estate, he or she is less likely to receive a taxable gain because appreciated assets receive a new "date of death" basis when the owner dies.
On the other hand, if you expect considerable increase in the value of an asset over your lifetime, then your give now will remove the value of such an asset from your estate.
Convert an IRA.
You could convert part of a traditional IRA to a Roth IRA.
What would this do?
While you would owe income tax on the converted money, the taxes paid would help reduce your estate.
It would also give your beneficiaries the ability to make withdrawals free from income tax once they inherit your Roth.
These are not the only ways to keep estate taxes from taking a chunk out of your assets, but they could help.
To help create a plan specific to your unique needs and your assets, work with an experienced estate planning attorney.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: nj.com (October 20, 2017) “Last minute help to avoid estate tax”