Estate taxes can significantly alter the legacy that an individual leaves when they die. They may have intended for their loved ones to receive all of their property, but estate taxes could force the liquidation of certain assets to fulfill tax responsibilities.
The obligation to surrender a substantial percentage of the overall estate to tax authorities ultimately reduces what beneficiaries inherit. The larger an estate is, the higher the tax rate that may apply. Those with multi-million dollar estates frequently decide to plan for the minimization or avoidance of estate taxes. What strategies can help people limit tax obligations?
Keeping assets out of probate court
Any assets that become part of an estate contribute to the value of the estate and the risk of taxes. The simplest way to avoid estate taxes is to diminish the value of an estate before a person dies.
People can achieve that goal by making strategic gifts, transferring assets to a trust, transferring property to their spouses, taking on co-owners and even adding transfer-on-death designations to financial accounts. The nature of property and the people chosen as beneficiaries can influence what tactics people employ. Each testator planning their estate may need to use an unique approach.
Assets that people transfer to new owners while they are alive or with special paperwork do not become part of an estate. Therefore, they do usually not contribute toward the total value of the estate and the risk of estate taxes. Reviewing personal holdings with an estate planning attorney is a smart decision for testators with valuable assets that could be subject to taxation after they die.
