In order to protect your legacy and your heirs from excessive taxation, you should apply tax avoidance principles to wealth transfer. Still, it requires careful planning and oversight to ensure techniques don\u2019t cross the line to tax evasion.<\/p>\n
Assessing tax options can determine the best way to conduct business or personal transactions and inheritance to reduce or eliminate tax liability. Tax avoidance differs from tax evasion, which reduces tax liability through concealment or deceit. Tax evasion is a crime, but tax avoidance can lower your tax bill by structuring transactions to save the most money.<\/p>\n
Inherited assets often come with tax burdens, and planning ahead can simplify some of the processes and lower taxes for your heirs. Depending on the state of the deceased\u2019s estate<\/a>, inheritance taxes will differ. As laws and regulations change regarding inheritable assets, your estate planning attorney can conduct a routine review of your plan to ensure transferring wealth is tax-efficient.<\/p>\n The most direct way to minimize inheritance tax is to start gifting your heirs money each year while you\u2019re still alive. Taking advantage of the gift tax exclusion of $17,000 per year per person is a quick way to transfer non-taxable cash or assets to heirs. A married couple can gift $34,000 yearly to each child or other inheritor without tax consequences to the gifter or the recipient.<\/p>\n A solid insurance plan can also set up future inheritors without tax consequences. Choosing between whole life and term life insurance will determine how long the policy will last. A term or whole life insurance policy generally provides the beneficiary a death benefit not subject to income taxes unless they receive payouts in installments.<\/p>\n An irrevocable life insurance trust (ILIT) can control whole or term life insurance policies while the owner is alive. Transferring your policy to the trust or using the trust for purchase means you own your insurance policy as the trust grantor. You can determine who administers assets, designate beneficiaries, and the terms of receiving benefits. Your estate planning<\/a> attorney helps you set up the trust and properly fund it.<\/p>\n An ILIT removes the life insurance policy from your gross estate, which minimizes or eliminates estate tax liabilities on assets not qualified as marital or charitable deductions. The policy provides immediate liquidity to the decedent\u2019s estate and beneficiaries upon the insured\u2019s death.<\/p>\n An annuity with a death benefit pays a lump sum to a beneficiary. There are also joint-and-survivor annuities that provide a guaranteed income stream to the beneficiary for life. While annuities are subject to tax, they can be structured to minimize the tax burden to the beneficiary.<\/p>\n Heirs will pay tax on any inherited retirement benefits if they are in a 401(k) or Individual Retirement Account (IRA). However, taxes on a Roth 401(k) or Roth IRA are already settled upon conversion, so there is no additional tax on distributions. While this is great for inheritors, when the owner converts a standard 401(k) or IRA to Roth, there will be regular income tax consequences for the conversion to occur.<\/p>\n Real estate is one of the most significant non-liquid assets to pass on to heirs. Capital gains tax will apply to real estate, and the recent IRS Revenue Ruling 2023-02 removes the step up in basis even if the real estate is in an irrevocable grantor trust.<\/p>\n However, this new ruling doesn\u2019t apply if the irrevocable trust is in the grantor\u2019s gross estate. The rules and applications are complex and will require the review of an estate planning attorney to decipher.<\/p>\n If the property is not in an irrevocable trust, there are three other options to pursue:<\/p>\n Unlike other gifted securities, inherited stocks don\u2019t maintain their original cost basis. Upon inheriting a stock, the inheritor receives a step-up in cost basis determined by the stock\u2019s value at the date of death. If you have held dividend-producing stocks for a significant time, the cost basis may make selling financially unproductive. However, an inheritor with a step-up in cost basis can immediately sell the stock to create cash flow without tax consequences.<\/p>\n Capital gain tax methods are a highly-contentious topic in the ongoing debate of inheritance and taxes. Often regulations may change without Congress enacting a law, as in the case of IRS Revenue Ruling 2023-02. To ensure your strategy is in tax compliance and advantageous to inheritors, review your estate plan<\/a> routinely to account for any legal changes.<\/p>\n Your estate planning attorney can help you legally minimize tax liabilities to your heirs by gifting assets during your lifetime, establishing trusts, and leveraging exemptions. Tax-advantaged accounts, capital gains tax planning, and other tax-efficient investments like life insurance can minimize taxes to your heirs.<\/p>\n Further, you can use family and charitable trusts or philanthropic foundations to receive tax benefits. There are many creative ways that your estate planning attorney can legally help to minimize taxes to your heirs. Estate planning guidance<\/a> is key in creating wealth transfer management and tax strategies. Your attorney can provide personalized advice based on current tax laws and regulations and work with your tax advisor to create the best outcome for your heirs.<\/p>\n We hope you found this article helpful. Contact<\/strong><\/a> our office at <\/strong>(740) 947-7277<\/strong><\/a> and schedule a free consultation to discuss your legal matters. <\/strong>We look forward to the opportunity to work with you.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" In order to protect your legacy and your heirs from excessive taxation, you should apply tax avoidance principles to wealth transfer. Still, it requires careful planning and oversight to ensure techniques don\u2019t cross the line to tax evasion. Assessing tax options can determine the best way to conduct business or personal transactions and inheritance to…<\/p>\n","protected":false},"author":2,"featured_media":1687,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[15,25,142,143,29],"post_series":[],"yoast_head":"\nGifting Your Money And Assets<\/h2>\n
Life Insurance<\/h2>\n
Irrevocable Life Insurance Trusts<\/h2>\n
Death Benefit Annuities<\/h2>\n
Retirement Accounts Converted to Roth Accounts<\/h2>\n
Real Estate<\/h2>\n
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Stock Investment Accounts<\/h2>\n
Estate Planning Attorneys and Tax Planning<\/h1>\n