Excellent question. However, unless you have more than $5.43 million as a single individual or $10.86 million as a married couple, then (under current law) you need not worry about federal estate taxes.
If you are still reading this blog post because your estate would be subject to estate taxes or you are just intellectually curious, then you may be interested in what The Motley Fool had to say on this subject in a recent article titled “3 Smart Strategies Designed to Reduce or Eliminate Estate Taxes.”
While you will want to click over to the original article, here is a quick look at these three strategies.
Annual Gift Exclusion.
For starters, consider giving while you are living so you are knowing where it is going.
It can be fun and informative to actually see your generosity at work while you are still alive to see your loved ones enjoy it.
In fact, I got a little granular on this very subject in a post but a few days ago.
One of the charms and attractive features of this strategy is just how simple it is.
Unless you exceed the applicable annual gift exclusion amounts (click over to that blog post I mentioned), then no attorney or other professional assistance is required.
Benefit: Every dollar you give now while you are alive reduces the value of your estate when you are not.
Qualified Personal Residence Trust (QPRT).
Oftentimes a home is one of the largest assets in an estate, especially if you life in a state with high housing prices.
As a result, creating a QPRT is worth considering.
Basically, you transfer your home into a QPRT, establish how long the trust is to last, and who will inherit your home when the trust ends.
You get to reside in the home throughout the time period you establish, but must continue paying real estate taxes and insurance.
What about when the trust ends?
You may continue living in the home, but will need to pay rent to the trust beneficiaries at fair market value.
While it may seem off-putting to think of "renting" your own home, remember that this even enhances the amount of wealth your are transferring to your loved ones instead of the IRS.
That epiphany itself ought to make you smile.
As you can imagine, creating a QPRT is not a do-it-yourself project and there are more moving parts involved than I noted.
Be sure to engage an experienced estate planning attorney.
State Estate Taxes.
You may have rubbed your eyes when you read this third strategy.
No, you read that correctly.
Although the threshold for federal estate taxes excludes most taxpayers, about 15 states and the District of Columbia apparently did not get the memo.
Every state can have a different minimum and maximum tax threshold and differing exemptions.
So, what should you do?
If you live in one of these jurisdictions with an estate tax, then you should consider moving or consult an experienced estate planning attorney to help you avoid or minimize the tax hit.
* The difference between tax "avoidance" and tax "evasion" is about 20 years in Leavenworth.
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: The Motley Fool (October 3, 2015) “3 Smart Strategies Designed to Reduce or Eliminate Estate Taxes”