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Estate Tax

Estate tax refers to federal and state taxes which might be due on inheritance assets. Also known as death tax or inheritance tax, estate taxes are charged on assets held in probate which are later transferred to beneficiaries.

One way to minimize estate tax is to designate payable-on-death and transfer-on-death beneficiaries. Payable-on-death (POD) beneficiaries can be named on life insurance policies, individual retirement accounts (IRA), Certificates of Deposit (CDs) and bank accounts. Transfer-on-death (TOD) beneficiaries can be assigned for property such as automobiles, recreational vehicles, motorcycles and water craft (boats, jet skis).

Assets transferred to an irrevocable trust are generally exempt from estate taxes. The primary benefit of irrevocable trusts is they remove ownership of assets from the grantor's taxable estate. The grantor is the person who owns the assets. However, once assets are transferred to the irrevocable trust, the grantor gives up their rights to ownership and control of the property.

Irrevocable life insurance trusts are another option to minimize estate taxation. Life insurance trusts can be thought of as a container that holds your life insurance policy. The trust removes life insurance proceeds from the estate to avoid probate. Irrevocable life insurance trusts consist of a contract used to administer the life insurance policy for named beneficiaries.

Drafting irrevocable trusts and irrevocable life insurance trusts require the expertise of an estate planning lawyer or probate attorney. Prior to consulting with attorneys to develop estate planning, it is important to prepare a list of assets and their values, insurance policies and financial portfolio.

A lesser known way to avoid estate tax is to give your money and valuable assets away while you are still alive. The federal government allows you to gift up to $12,000 per year, per person to any individual tax-free.

Monetary gifts provided to minor children over the age of 14 can help minimize estate tax and capital gains tax. Dividends and capital gains are taxed a lower rate for children than adults. Monetary gifts can be setup in a trust with specific instruction for distribution. For instance, the minor child might receive a portion of the proceeds when they graduate from high school and college. They might receive distributions when they reach certain milestones such as getting married, buying a home or starting their own business.

Estate planning is a crucial part of ensuring your loved ones are provided for in the event of your death. Regardless of the amount of assets you own, it is imperative to engage in some form of estate planning. At minimum, you should execute a Last Will and Testament, Healthcare Proxy and Durable Power of Attorney.

We invite you to learn more about estate planning, probate, inheritance, estate tax and more in our estate tax blog article library. If you are entitled to inheritance assets held in probate and seeking cash for inheritance funding, contact Simon Volkov today to determine what options are available to you. Simon specializes in inheritance funding and liquidation of probate assets.