An important part of estate planning involves assessing the tax burden your estate will incur after you pass. If you have a large estate, this is particularly important. Any estate with over $11.58 million in assets is subject to a 40% federal estate tax. Fortunately, the state of Texas does not impose separate inheritance taxes or estate taxes.
If you have a large estate you may have concerns regarding the tax burden of your estate. There are several ways you may reduce the amount of your estate before your death, however, to decrease the tax implication once you pass. One of the many ways to do this is by gifting assets to your beneficiaries while you are still alive.
Gifting as a strategy
According to the Internal Revenue Service website, in 2020 you can gift up to $15,000 to a single person without anyone incurring a gift tax. If you have concerns about your estate being too large, gifting out money or assets can greatly reduce the amount of your estate. You may make gifts to multiple donees, in multiple years. This can help to reduce your estate to a level that will avoid higher taxation. This strategy may end up saving thousands of dollars.
Considering other strategies
In addition to gifting assets, there are other estate-reducing strategies you can employ. The following list includes some of the most common.
- Donating to charities to reduce the size of your estate.
- Creating life insurance trusts. This removes the life insurance amount from your estate.
- Creating AB trusts for the benefit of your children.
- Creating QTIP trusts to delay the collection of estate taxes.