When your estate has significant assets, then it may be subject to death taxes. These taxes can equal up to 40% of your estate’s value, and your beneficiaries shoulder them once you pass on.
You might find this figure concerning, since it could reduce your estate by almost half. But legal methods of reducing your tax bill exist.
Who qualifies for the death tax?
The death tax affects single people who have assets exceeding $11.18 million, and couples with assets greater than $22.36 million. This includes not only financial and property assets, but art, furniture, heirlooms and other belongings.
When someone passes on, their beneficiaries pay a significant one-time fee for the transfer of these assets. In 13 states – including New York – estates are subject to state taxes as well.
What can you do when facing the death tax?
A great way of minimizing your tax bill is by making yearly gifts to beneficiaries. By law, financial gifts that total less than $15,000 are not subject to taxation. Since that amount is per gift, you can allot yearly sums to your beneficiaries. This can happen from the time you establish a will or trust, until its contents fall below the amount where death taxes kick in. Deducting your estate’s expenses or making charitable contributions can also reduce its taxable value.
You may be in a committed relationship where your combined estates fall below the $22.36 million threshold. If that’s the case, getting married can keep you from qualifying for the death tax. Marriage makes most sense when you or your partner have assets greater than $11.18 million on your own.
The death tax can complicate your estate planning process. But these two techniques are among the simpler ways you can reduce its burden. Working with an estate planning attorney can help you understand how to minimize its impacts on both you and your beneficiaries.