How Inheritance Tax Relief Can Save Your Family

When you die, your beneficiaries can receive an amount of money that may be tax-free. This is called an estate tax exemption. Inheritance tax relief can be achieved in a number of ways. Some of them include creating an irrevocable trust to avoid probate requirements. Another strategy is to gift appreciated assets while you’re still alive.

Irrevocable Trusts Avoid Probate Requirements For Inheritance Tax Relief

One way to avoid estate taxes is to use an irrevocable trust. An irrevocable trust is a legal arrangement whereby an individual creates a trust and then leaves the assets to it. These assets are considered separate from the estate of the individual and can not be accessed by creditors nor state tax agencies. This means that you can avoid paying taxes on your estate and can continue to benefit from your trust during your lifetime.

Although irrevocable trusts aren’t suitable for everyone, they can be a good solution for many different situations. They can reduce your estate tax liability, make your beneficiaries eligible for government programs, and protect your assets from creditors. These arrangements can be costly and complex, and can cost thousands of money. Irrevocable trusts can be especially useful for professionals whose assets are at risk of lawsuits. Since the assets are owned by the trust, they are protected from creditors and legal judgments.

Tax Savings Can Be Made By Transferring Appreciated Assets

Giving appreciated assets to family members is a tax-efficient way to save your family money. While you will need to pay capital gains tax on sold assets, your gift will give your family members an income tax break. Gifting appreciated assets will also give the beneficiaries a boost in basis at death.

Transferring appreciating assets to your heirs through an intra-family loan is another tax-saving planning option. This method allows you to keep the principal and transfer appreciation to your children, while maintaining flexibility for future planning. The GRAT technique is a highly efficient method for transferring appreciation without sacrificing the grantor’s financial security. It leverages historically low interest rates while minimizing gift tax consequences.

If you have appreciated publicly traded securities or private business interests, transferring them to a nonprofit organization may save your family money. A donation to a public charity or donor-advised fund will avoid capital gains taxes. A gift to a public charity can generally be deducted at fair market value.

Giving Away Money While You Are Still Alive

You can leave money to your grandchildren, children, and other relatives while you are alive without having to pay estate taxes. This is a great way to help your family in the future and provide a major financial advantage. With annual inflation at about 2.25%, the money you give away now will give your children a financial head start when they need it most. It may even help them fund a gap year abroad or college tuition.

Giving away money to your family while you’re alive can save your family thousands of dollars in estate tax. If you are eligible for the annual gift tax exemption, you can gift away up to $16,000 to your family members. Gifts to charity don’t incur gift tax, which reduces the size of the overall estate and the tax burden.