Estate planning might seem like something that only the wealthy need to worry about, but that couldn't be further from the truth. In fact, estate planning is important for everyone, regardless of their financial situation. However, one aspect of estate planning that often gets overlooked is estate tax. Many families are caught off guard when they realize just how much of their inheritance could be eaten up by taxes. It's important to take action now to save on estate tax later. Here are three steps an estate planning attorney can help you take to do just that.
Step 1: Start by talking to an estate planning attorney.
The first step in any estate planning should be to talk to a qualified attorney. An estate planning attorney can help you understand federal estate tax rules and any specific inheritance tax laws in your state. They will work with you to design a plan that minimizes your future tax liability and help you explore other estate planning tools, such as trusts, that can further reduce your tax burden.
Step 2: Make use of tax-exempt gifts.
In most states, there are limits to the amount you can gift to someone each year without triggering the gift tax. In other words, a parent could 'gift' a certain amount of money (specified by the government) per year to each of their children without their child having to claim it on their tax return. By using these tax-exempt gifts, you can reduce the size of your estate and potentially save on estate tax. Just be sure to keep careful records of all gifts and consult your estate planning attorney to ensure you're not inadvertently triggering any taxable events.
Step 3: Consider life insurance as part of your estate plan.
Life insurance can be a valuable tool in estate planning, especially for those who have substantial assets but are still relatively young. By purchasing a life insurance policy, you can create a source of tax-free income that your heirs can use. The policy can help preserve the value of your estate for your loved ones and give you peace of mind knowing that your estate plan is comprehensive and effective.
Estate taxes can be a significant burden for families who aren't prepared. By taking action now to reduce your tax liability, you can ensure that your hard-earned assets pass down to your loved ones as intended. The three steps outlined above are just a starting point. Talking to an estate planning attorney can help you minimize your tax burden and maximize the value of your estate for those you care about most.
Contact an estate planning attorney for more information.