Estate taxes are the taxes the government collects from a person after they die. These taxes are often quite high and can take as much as 55% of a family’s estate.
Many people would rather their heirs assume ownership of their property and cash, so they hire lawyers to draft comprehensive estate plans. These plans can capitalize on a few different ways to protect one’s estate.
Different approaches to reducing estate tax
Every estate is different so every estate plan will be different as well. People can ask their lawyers about the following tactics:
- Transfer property to one’s spouse: A married couple may freely transfer property between each other. The government will not tax this property when the decedent dies, protecting the family home and automobiles from estate taxes.
- Gifts: People can give any number of people up to $12,000 in tax-free gifts once every year. Spouses can pool their gift allowances together. This method removes cash from the estate, reducing the taxable amount from the estate.
- Trusts: Trusts allow people to give up ownership of assets or cash to reserve their use for someone else, eliminating or deferring taxes. A lawyer can provide more context on which trusts will serve the family best.
- Private annuity “sale”: People can “sell” property to a younger generation for an unsecured promise of pay. The recipient will pay annually on the asset until the original owner’s death.
- Gifts to charity: People can not only receive a deduction for donations but will not have to pay taxes on the gift either. Some types of donations allow the original owner access to the asset until they pass.
- Special use real estate valuation: The federal government usually values real estate at its highest possible value to take the highest cut of estate taxes. To help homeowners, the Internal Revenue Service (IRS) ensures the property is valued at its “actual use.”
An attorney can answer questions
Too few adults have comprehensive estate plans. If the unfortunate happens, families must curb unforeseen costs like long-term healthcare or estate taxes. For more information, reach out to a local lawyer familiar with Texas estate law.