Very large estates are subject to federal estate taxation. Even modest estates of those with real estate holdings or a business in their name could be subject to Illinois estate taxes. Planning ahead is crucial for those who want to limit their tax liability after they die. Otherwise, they may end up paying a portion of their estate to both the state and federal governments.
Estate taxes can reduce what someone has to leave behind for the people they love or the causes that matter to them. Employing one of the tactics below or a combination of all three could help you minimize and possibly altogether avoid estate taxes.
By giving people early access to their inheritance
One of the most rewarding means of minimizing your estate tax liability is by making strategic gifts to those who would inherit from your estate. You can gift people up to an annually-adjusted maximum amount of money or valuable property every year without them needing to pay tax on those gifts. Spread across enough people and over enough years, such gifts can help reduce the overall value of your estate to below the thresholds for state and federal taxation.
By creating a trust
A trust, much like a gift, changes the ownership of major assets. You can execute a deed to move your house into a trust. The trust can also hold assets ranging from personal property to financial accounts. The trustee will have to manage those assets and distribute them according to the instructions you provide. The assets that you have in a trust will typically not go through probate court as part of your standard estate and will therefore not be subject to estate taxation.
By arranging for the transfer of ownership to occur when you die
Some of your most valuable assets could bypass probate and therefore the risk of estate tax by transferring at the time of your death to someone else. You have the option of adding a transfer on death designation to many different kinds of financial accounts. You could also do something similar with real estate with the right deed and title language.
Considering all of the many ways that you can minimize your estate tax risk will help you maximize the legacy that you leave when you die.