The estate tax seems somewhat unfair when put into perspective. Basically, the estate tax is the federal government’s ability to tax you for the right to transfer your property when you die. This can very disappointing for individuals who have spent their entire lives accumulating their wealth through hard work.
In most cases, the total aggregate wealth of an individual including cash and securities, real estate and other assets are tallied up as part of a decedent’s gross estate. At that point, certain items are excluded from that gross estate such as mortgages and property that will pass on to surviving spouses. That final tally is then considered as a decedent’s taxable estate.
The reason why this could be important for you is that the assistance of an estate planning attorney may be able to help you legally reduce the amount of your overall taxable estate. In fact, you may be able to avoid substantial estate taxes simply by using several types of financial loopholes. A good example of one of these loopholes is your ability to gift a certain amount of money each year to as many individuals as you like. In 2013, individuals were able to give way up to $14,000 annually. Gifting money allows you to avoid gift taxes while also reducing your overall taxable estate. This can be a long-term strategy for individuals who want to benefit their heirs while they are still alive to see them experience that benefit.
Another strategy that can help some people protect their assets is to restructure their wealth using an irrevocable trust. You can set up these trusts in a way that will pay you a salary after you transfer your wealth to the trust. Upon your death, the assets in that trust can be distributed among your heirs. Of course, your particular situation may require a different approach. A consultation with an estate planning attorney could help you figure out the best strategy tailored to your needs.
Source: Internal Revenue Service, “Estate Tax,” accessed July 21, 2015
