Did you know that the IRS will still demand an estate tax on the property that devolves to your beneficiaries? If not thought out, the estate tax would massively diminish the portions beneficiaries ought to receive. Estate taxes are separate from probate fees that are paid in court.
What is an estate tax, and how much is charged?
An estate tax is defined as tax charged to transfer your property to another person upon your demise. The base rate set for estate taxes amounts $11,700,000+ for single persons and $23,160,000 for couples. Any amounts below the threshold are considered estate tax-exempt. Therefore, it is important to ensure that your estate is within the estate tax-exempt category.
Ways to mitigate estate tax
The taxes are levied on any amount of property or money beyond the threshold. They are not only excessive, but also unnecessary. They are charged for transferring property to the beneficiaries, nothing more. However, there are ways to ensure that no estate fees are paid. These include:
- Getting married: Marriage is a valid method of minimizing or avoiding paying estate tax. The estate tax exemption allows for any unused portion by one spouse to be transferred to their partner. Therefore, upon a spouse’s demise, an unused threshold would be transferred to the surviving spouse.
- Gifts: You can decide to give out gifts in your lifetime. These gifts are known as gifts inter vivos, meaning gifts given by a living donor. It is important to stay up-to-date with the estate tax threshold, as it keeps changing. For example, the estate tax exemption bracket was $11,580,000 in 2020 and now it has risen to $11,700,000. Therefore, you can conveniently give donations amounting to $15,000 to any person without incurring any tax. The amount can be doubled to $30,000 to your spouse tax-free. Ensure that you don’t give out your entire estate while still alive because once you have given a gift inter vivos, it cannot be revoked.
- Creating wills: A will is an essential document that conveys a testator/testatrix’s wishes on they want their property to devolve upon their demise. Through a drafted will, the decedent would be able to avoid paying the estate tax.
Need for estate planning
An effective and prior estate planning would save your estate from expending thousands or millions of dollars in taxes. These funds could have been appropriately utilized in doing other useful things for the family, friends or even used in charity. Therefore, the tips in this article would prove important in helping you effectively plan your estate.