When you are starting to plan your estate, one thing you might worry about is how much taxes your heirs will need to pay. Dealing with those taxes can be frustrating and can actually decrease the value of the inheritance you leave to your loved ones significantly. But when you can find ways to reduce those taxes, you will be in a much better position to take care of your family.
Life Insurance
One way to avoid or at least reduce the taxes your family members will need to pay on your estate is by using life insurance as one way that you take care of your family. With life insurance payouts, your heirs will not be taxed for the amount they inherit. This means that you can use life insurance as your primary tool for passing on assets to your heirs. Or, you can use life insurance as a way to offset taxes, so your heirs can pay the taxes on your estate with the life insurance money itself.
Trusts
Money that is put into a trust is subject to different taxing rules than other kinds of funding. The trust will be automatically given to your heirs at the point that you decide on in your will or other legal documents. In most cases, trusts are also easier for heirs because they are less likely to have to deal with the probate process since trusts are legally determined. Probate is the verification process of the will, and can take time to complete.
Give Money While You Are Alive
Most people think about their estate as money that they will give to their heirs after dying. However, you can mitigate some of the taxes involved in giving a large inheritance by giving them money while you are still alive. Gifting amounts of less than $15,000 per person per year will not result in any taxation. So, you can help your children and other heirs to inherit money with a smaller tax penalty by starting to provide them with their inheritance before you pass away.
Managing your estate can be challenging, especially when you want to make sure that your heirs aren’t facing significant penalties. It’s important that you start thinking about your estate as early as you can, so you can avoid these issues. That way you and your heirs can rest easy knowing that your estate is taken care of.
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